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All Eyes On Monitise Plc, Barratt Developments Plc & SThree Plc Next Week!

Monitise (LSE: MONI), Barratt Developments (LSE: BDEV) and SThree (LSE: STHR) report their trading updates next week: what should investors expect?

And, equally important, are their shares attractive enough, based on fundamentals, at their current valuations?

Here’s my quick take on them.

Monitise (5.8p A Share, Down 77% This Year)

If you are invested, you really have to hope that a takeover from a larger player takes place sooner rather than later. There’s plenty of choice, really!

Visa Europe said it will reduce its shareholding over time, but Monitise retains the backing of Santander, Telefonica and MasterCard, while a multi-year global alliance is in place with IBM and a seven-year digital banking partnership was agreed with Virgin Money last year. 

But maybe you think you need more than that to invest your savings in this mobile payments processor. The problem is that its cash generation profile based on less than £90m of projected revenues doesn’t look great in a sector where competition from the major tech companies in the world is fierce.

Under chief executive Elizabeth Buse, Monitise will continue “to drive towards Ebitda profitability in FY 2016 and profitable growth thereafter“, the group said in a recent trading update. But it’s burning cash at a fast rate this year, and dilution risk stemming from a cash call is a real risk. 

Moreover, there’s no visibility on multiples for earnings and cash flows. Finally, its 0.3x price-to-book value signals distress, while its price-to-tangible book value signals that its stock is still overpriced by at least 40%, in my view, even at less than 6p a share. 

SThree (352p A Share, Up 18% This Year)

SThree provides recruitment services in the information and communication technology industry, which is hot property these days.

Keep an eye on its third-quarter results, paying particular attention to core cash flow growth and any possible beat on revenues. Also, make sure you check its core operating margin, which should hover north of 5% — if it doesn’t, it could be a bad day for shareholders. 

Its shares are not cheap at 18x forward earnings, but its 4% forward yield is rather attractive and its balance sheet is sound. That said, its yield is rich based on its earnings profile.

I am not ready to buy into this income story, but if you plan to add exposure to SThree, consider that consolidation in the recruitment industry in the UK is long overdue. 

Barratt Developments (633p A Share, Up 38% This Year)

Barratt is profiting from risk appetite in a sector where the shares of most homebuilders have been rising for months now. The bulls have been proved right so far in 2015, and even recent market volatility has not spoiled their plans. 

Indeed, if Barratt meets estimates for growth in earnings per share (EPS), it will have grown EPS at an astonishing 25% compound annual growth rate between 2014 and 2017.

If you believe in these estimates, you’d do well to build up a long position in the stock, given that its forward trading multiples for net earnings are in the mid-teens, and investors seem to believe that nothing can shake confidence in the sector. 

Its projected yield at 3.6% is rock solid, based on its earnings profile. One caveat, however,  is that Barratt one the most expensive bets in the sector…

So, you may be seriously tempted to look for alternatives.

Well, my take is that you should really take time out of your schedule to investigate the prospects of a small-cap stock, which is rallying hard on strong fundamentals, shrugging off concerns about volatility in recent times.

Its valuation is up 30% in the last two weeks of trade, and it remains a bargain right now, based on several metrics. We have identified this value and growth play in a brand new report, which comes without further obligations and is free only for a limited amount of time. 

So, get your FREE copy right now!

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