Should You Buy Sports Direct International Plc, Dunelm Group plc And Independent Oil & Gas PLC Following Recent Updates?

Shares in home furnishings company Dunelm (LSE: DNLM) have slumped by around 4% today, after it released a rather mixed set of results for the first half of the year.

On the one hand, its sales grew by 10% compared to the first half of the prior year, with like-for-like sales rising by 4.6% during the same period. However, because the most recent half year benefits from including eight days of winter sales, versus the previous year which had only two days, Dunelm’s underlying performance is not as strong as it first appears to be, and the company has warned that the like-for-like sales number is likely to reverse in the current quarter.

Despite this, Dunelm’s figures are still relatively strong – especially given the unseasonably warm weather in the UK. Looking ahead, it is expected to grow its bottom line by a rather lowly 4% in the current financial year. That’s well behind the double-digit growth rate of just a few years ago, and yet Dunelm still trades on a premium valuation. For example, it has a price to earnings (P/E) ratio of 17.5 which, given its outlook, appears to make it rather undesirable for potential purchasers.

Also making the headlines today is Sports Direct (LSE: SPD). It has announced the holding of indirect interests in two US companies, Iconix Brand Group and Dick’s Sporting Goods. Through contracts for difference, Sports Direct now holds 11.5% of the issued share capital of the former and 2.3% of the latter.

Sports Direct states that the main reason for these stakes is to allow the company to build commercial partnerships and develop relationships with the two businesses. This move follows the company’s recent profit warning and calls into question its current strategy, with its European operations proving to be less successful than had initially been hoped.

With Sports Direct trading on a price to earnings growth (PEG) ratio of 1, it appears to be a strong buy at the present time. Certainly, its shares are likely to remain volatile, as the uncertainty surrounding its near-term financial performance continues. However, for long term investors it appears to be an enticing international retail play.

Meanwhile, shares in Independent Oil & Gas (LSE: IOG) have slumped by a whopping 39% today, after it announced a delay in drilling at the Skipper appraisal well. The reason for the delay is recent oil price movements, as well as bad weather in the North Sea. But IOG says it anticipates that the well will be drilled later in the year, when oil prices may be more stable.

In order to implement the revised timetable, IOG will require approval from its lenders, contractors and from the OGA in order to extend the Skipper licence beyond 30 March 2016. Discussions are ongoing, but the company has stated that there is now a greater refinancing risk facing the business due to the negative sentiment which faces the oil and gas industry as a whole. 

IOG has agreed £10m in convertible debt funding from London Oil & Gas (LOG), which can be converted into shares at 10p per share. This is in addition to the two other loans from LOG which were announced in December 2015.

Clearly, today’s news is a major disappointment for investors in IOG and, looking ahead, its future appears to be highly uncertain. With the oil price likely to remain volatile in the short to medium term, it may be prudent to avoid the purchase of IOG’s shares – at least until there is greater clarity regarding its long term prospects.

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Peter Stephens 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.