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Buy, Sell Or Hold Vodafone Group plc, Home Retail Group plc & Sports Direct International plc?

Vodafone

Tough trading conditions are holding back shares in Vodafone (LSE: VOD). Group revenue and operating profits are continuing to trend lower, having fallen 2.3% and 6.5% respectively in the six months to 30 September this year. As economic conditions stagnate in the Eurozone, consumers have become more price-conscious and savvier in seeking better deals, forcing operators to cut prices and fight out a price war against each other.

The company is trying to combat the effects of price competition by improving its competitiveness. It has been ramping up investment in order to improve its wireless network and to stay ahead of its competitors. An initial sign of success for this strategy is visible in the turnaround in organic group service revenue, which rose 5.4% in Q2 of 2015/6 — its fastest rate in three years.

But City analysts do not expect Vodafone will see overall revenue or earnings bounce back any time soon. Revenue is forecast to fall by 3-4% this year, whilst earnings are expected to fall by 14% to 4.8p per share. Its shares, which trade at a forward P/E of 49.1, are expensive as well. So I would recommend a hold on its shares until clearer signs for a turnaround in earnings are visible.

Home Retail Group

The steady rise in UK consumer confidence should be great news for investors in Home Retail Group (LSE: HOME), but since the start of the year its shares have fallen by 48%. Weakness from its catalogue retailer, Argos, has been dragging down the group’s performance. Like-for-like sales at these outlets fell 3.4% in the first half of its 2015/6 financial year. To make things worse, operating margins fell by almost half to 0.4%.

By contrast, trading conditions are steadily improving at its DIY chain, Homebase. Like-for-like sales is growing by 5.6% there, and operating margins have expanded by 90 basis points to 4.2%. But, because Homebase is relatively small compared to Argos (accounting for less than a third of the group’s revenues), the market has paid more attention to its problems with Argos.

Its shares trade at a forward P/E of 10.5, and valuations are unlikely to get much cheaper. Former Garden Centre executive Nicholas Marshall sees value in the group, particularly for Homebase, which he wants to acquire using financing from private equity. No formal offer has come out yet, but bid speculation should keep a floor on its share price.

Sports Direct

Meanwhile, Sports Direct’s (LSE: SPD) multi-channel strategy seems to be a resounding success. Sales are growing, both online and in-store, with like-for-like in-store revenue growth of 3.9% and online growth of 14.4%. In addition, the business is expanding rapidly, rolling-out its large-format stores in new city centre locations across the UK and internationally.

City analysts expect Sports Direct will follow last year’s chunky 21% jump in earnings with growth to the tune of 11% this year. This gives its shares a prospective P/E rating of 16.4, which may seem a little pricey.

But, given the firm’s track record of delivering long-term profit growth and bullish near term forecasts, we should allow for a slight premium in its valuation. It is also important to note that its shares are trading below its historical average forward P/E of 17.5.

Investment brokers are very bullish on the company, and out of the 12 recommendations, 9 are strong buys, with the remaining 3 being neutral. With so many signals being bullish, shares in Sports Direct seem to be a good buy to me.

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