Shares in industrial company Xeros (LSE: XSG) have soared by 11% today after it released an upbeat set of interim results. The developer of patented polymer bead systems increased earned income to £744k from £95k in the prior period, delivering on the strategy that was laid out at its fundraising in November last year.
Furthermore, the roll out of the company’s commercial laundry offering continues to take place at a good pace and Xeros is now installing around one machine per working day, with this rate expected to increase. In addition, the company’s trials in leather processing are on-track and should be complete in the middle of the current year. And with studies to identify new potential applications being on schedule, Xeros is showing the market that it possesses a platform technology.
Despite their double-digit rise of today, shares in Xeros are still down by 6% since the turn of the year. However, they could continue their rise since the company’s strategy appears to be sound and as today’s update shows, investor sentiment is warming to Xeros’s outlook.
Another industrial stock which has experienced a turnaround in investor sentiment is Rolls-Royce (LSE: RR). Its shares have risen by 20% year-to-date and a key reason for that is the expected improvement in the company’s bottom line during the next couple of years.
Certainly, Rolls-Royce’s earnings are set to endure more pain in the short run with a fall of 56% pencilled in for the current year. But with a new management team and a refreshed strategy, Rolls-Royce has the potential to increase its net profit by as much as 32% next year according to market forecasts.
This puts the company on a price to earnings growth (PEG) ratio of just 0.7, which indicates that Rolls-Royce offers growth at a very reasonable price. And with the global economic outlook being relatively upbeat for the long term and the wider aerospace and defence sector offering improving levels of demand for new products, Rolls-Royce could now be worth buying after a hugely disappointing 2015 which saw its share price slump by 34%.
Also enduring a tough 2015 was defence sector peer Meggitt (LSE: MGGT). Its shares fell by 28% in that calendar year but, like Rolls-Royce, Meggitt is in the midst of a turnaround. This has helped its shares to rise by 7% since the turn of the year and with its bottom line expected to increase by 4% this year and by a further 8% next year, the company’s current valuation has huge appeal.
In fact, Meggitt trades on a price to earnings (P/E) ratio of just 12.3, which equates to a PEG ratio of 1.4 when combined with the company’s forecast growth rate. Allied to this is a dividend yield of 3.8% and with the company’s dividends being covered over twice by profit, there is considerable potential for rapid dividend rises in the coming years.
So, while Meggitt and Rolls-Royce have been disappointments in the past, both stocks appear to be worth buying for the long term. And while Xeros has potential, the size of the turnaround prospects for its larger peers, as well as their scale and financial strength, make them the preferred options at the present time.
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Peter Stephens owns shares of Meggitt. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.