Diageo’s (LSE: DGE) share price performance in 2015 has been rather disappointing, with the alcoholic beverages company posting a decline of 1% since the turn of the year. This, though, is still better than the FTSE 100’s fall of 8% year-to-date and shows that even though Diageo’s short term performance is rather poor, investors are still positive about its long term potential.
In fact, Diageo has reported a 14% fall in earnings over the last two years and is expected to deliver a rise of only 1% in its bottom line in the current year. This is hugely disappointing, since in previous years Diageo had reported double-digit net profit growth, while many of its index peers were struggling to offer any positive growth numbers.
However, with a slowdown in emerging markets, notably China, Diageo’s financial performance is taking a hit. In the long run, though, it has huge growth potential, since earnings among the emerging world’s workforce are set to rapidly rise over the coming years and, following on from this, demand for consumer goods such as premium alcoholic drinks is forecast to increase.
With Diageo being well-positioned to take advantage of this trend, its price to earnings (P/E) ratio of 20.5 still holds considerable appeal, even though 2016 may not be a stand-out year for the company’s shares.
Meanwhile, cash and carry operator Booker (LSE: BOK) has continued its strong share price performance from previous years into 2015. Its valuation has risen by 7% during the course of the year and, with its bottom line set to increase by 7% in the current year and by a further 13% next year, Booker has become a highly reliable growth company.
This, though, appears to be fully reflected in the company’s valuation. For example, Booker trades on a P/E ratio of 24.8 and while this translates into a price to earnings growth (PEG) ratio of 1.8, Booker’s shares still appear to be rather fully valued.
Certainly, a pull-back could bring them into buying territory over the medium term but, as things stand, Booker does not appear to be a highly appealing buy at the present time. That view is further evidenced by a yield of just 2.2%, which indicates that there are better options elsewhere for long term investors.
Shares in IGAS Energy (LSE: IGAS) have soared by as much as 50% today despite there being no news releases made by the company. The shale gas specialist’s share price has been relatively volatile of late, following the release of its half-year results. Although they showed a widening of its losses versus the comparable period from last year, there were major impairments of goodwill and assets which, while having the potential to continue in an oil price environment, mean that the headline financial numbers do not fully reflect the progress being made by the company.
Looking ahead to 2016, IGAS Energy is upbeat regarding the prospects for shale gas. The company is delivering on its five-year plan and, with a relatively high cash balance, appears to have the financial resources through which to become a profitable entity in the long run.
However, its future is highly dependent upon the UK’s responsiveness to using shale gas and, with the oil price continuing to fall and there being the scope for further impairments, it appears to be a stock to watch, rather than buy, at the present time.
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended Booker. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.