2015 has been another challenging year for Serco (LSE: SRP), with the support services company’s shares falling by 39% since the turn of the year. And, while a number of its sector peers which also encountered problems in previous years have begun to turn themselves around, Serco continues to struggle. In fact, it released a profit warning just last week which shows that 2016 could be another difficult year for its investors.
In fact, Serco’s bottom line is expected to fall by 8% next year, which may cause investor sentiment to come under a degree of pressure. That’s especially the case since Serco trades on a forward price to earnings (P/E) ratio of 38.7, which indicates that its shares are vastly overpriced. Certainly, it has the potential to mount a comeback as the likes of G4S and Balfour Beatty are slowly doing, but now does not appear to be the right time to buy a slice of it.
Similarly, Monitise (LSE: MONI) is also enduring a very difficult period which has seen its shares fall in valuation by an incredible 90% since the turn of the year. While much cheaper than they once were, Monitise’s future prospects have arguably become less certain. It now has a new management team and, while a refreshed strategy has the potential to turn a great product into a great business, Monitise is expected to remain a long way from profitability in 2016.
In fact, Monitise is expected to make a pretax loss of £27m in 2016. Although that would be a step in the right direction following the combined £342m in pretax losses made in the last three years, Monitise needs to ‘make hay while the sun shines’. In other words, its product is very popular, as evidenced by a string of blue-chip clients, and the use of mobile payment solutions continues to grow. However, as history shows, technology does not stand still and the current cutting edge of online banking apps could be eclipsed by a new technology in the medium term.
As such, Monitise may be unable to make the most of its opportunity and this means that there are better options elsewhere for 2016.
Also having experienced a tough 2015 is Findel (LSE: FDL). Its shares are down 10% since the start of the year and it has been in the headlines due to apparent disagreement with Sports Direct regarding board members after the FTSE 100 listed sportswear retailer bought a 19% stake in Findel.
Although there is a good chance that further disagreements will be a feature of Findel’s short term outlook, the company itself appears to be moving from strength to strength. For example, in the current financial year its earnings are due to rise by 15%, with further growth of 7% being pencilled in for next year. This puts it on a price to earnings growth (PEG) ratio of only 1, which indicates that there is considerable capital gain potential on offer over the medium to long term.
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Peter Stephens owns shares of Findel. The Motley Fool UK owns shares of Monitise. 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.