The Motley Fool

3 Reasons Why I’d Buy TalkTalk Telecom Group PLC And Pace plc Before Blinkx Plc

Over the course of the last year, Pace (LSE: PIC) and TalkTalk (LSE: TALK) have easily outperformed Blinkx (LSE: BLNX), with their shares rising by 7% and 20%, versus a fall in Blinkx’s share price of 48%.

Clearly, the fall from a pretax profit to a loss making situation has hurt sentiment in Blinkx and, while its shares are moving in the right direction thus far in 2015, it still has a long way to go before it makes a full comeback. And, while Blinkx undoubtedly has significant future potential as it seeks to shift its strategy towards a faster growing mobile offering, I’d rather buy TalkTalk and Pace for these three reasons.

Claim your FREE copy of The Motley Fool’s Bear Market Survival Guide.

Global stock markets may be reeling from the coronavirus, but you don’t have to face this down market alone. Help yourself to a FREE copy of The Motley Fool’s Bear Market Survival Guide and discover the five steps you can take right now to try and bolster your portfolio… including how you can aim to turn today’s market uncertainty to your advantage. Click here to claim your FREE copy now!

Profitability

Even though Blinkx’s strategy appears to be a sound one, it is expected to remain in loss-making territory in the current year before making a small profit next year. As such, investor sentiment may struggle to improve significantly and push the company’s share price higher, although it is understandable that such a major transition will take longer than a year to have a positive impact on the company’s bottom line.

Meanwhile, TalkTalk and Pace are both expected to grow their earnings over the next two years. For TalkTalk, the growth rate is forecast to be astronomical, with it set to be 88% in the current year, followed by 51% next year. And, while Pace’s net profit is due to be flat this year and rise by just 3% next year, its tie-up with Arris means that its longer term profit growth outlook is very strong.

Track Record

Of course, the above is unsurprising when you consider that both Pace and TalkTalk have excellent track records of growth. Both are well-established companies that, while not dominant in their respective industries, are certainly strong niche players. In fact, both Pace and TalkTalk have been profitable in each of the last five years and, while their bottom lines have not always risen during that time, their performance should give their investors a degree of confidence regarding their future prospects.

This contrasts with Blinkx, which made a loss last year and which is in the middle of making major changes to its business model. Therefore, it is a less stable proposition and appears to come with greater risk than TalkTalk or Pace.

Valuation

While TalkTalk and Pace have upbeat outlooks, their shares still offer excellent value for money at the present time. For example, TalkTalk has a price to earnings growth (PEG) ratio of just 0.3, which indicates that its shares offer excellent growth potential at a very low price. And, with Pace having a price to earnings (P/E) ratio of 9.6, it could be set for an upward rerating moving forward.

Meanwhile, Blinkx trades on a forward P/E ratio of 77.5 and, while its new strategy could push earnings northwards at a rapid rate, it seems to offer less appeal in terms of its valuation than either Pace or TalkTalk. As such, the latter two companies seem to be the preferred options at the present time.

There’s a ‘double agent’ hiding in the FTSE… we recommend you buy it!

Don’t miss our special stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.

That’s why they’re referring to it as the FTSE’s ‘double agent’.

Because they believe it’s working both with the market… And against it.

To find out why we think you should add it to your portfolio today…

Click here to read our presentation.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.