Shares in Restaurant Group (LSE: RTN) have slumped by over 20% today after it released a disappointing trading update. The challenging trading conditions which the company flagged in March have worsened and it now expects like-for-like (LFL) sales to deteriorate by 2.5% to 5% for the full-year.
In particular, Restaurant Group’s leisure segment has struggled and due in part to this, it has initiated a review of the group’s operating strategy. This will focus on its brand positioning, store roll-out programme, property portfolio and overheads, with a number of operational initiatives being implemented over the medium term as the company seeks to improve its performance.
While Restaurant Group remains a high quality business, its shares could come under increased pressure in the short run as investors digest what’s a very disappointing update. Clearly, it has long-term potential and its financial performance could improve under a refreshed strategy. Therefore, while it may be worth buying for the long term, a keener purchase price may be possible for new investors in the short-to-medium term.
Also reporting today was education specialist Pearson (LSE: PSON). It’s on track to meet full-year expectations and is making good progress with its simplification programme, while its renewed focus on student learning seems to be positioning it for long-term growth.
While Pearson is forecast to report a fall in earnings of 23% this year, its outlook for next year is much more positive. In fact, Pearson’s bottom line is expected to rise by 14% next year, which indicates that its turnaround programme is set to begin to have a major impact on its financial performance. And with Pearson trading on a price-to-earnings (P/E) ratio of just 14.9, it seems to offer good value for money as well as upward rerating potential.
A potential catalyst to push Pearson’s shares higher is its dividend yield. It currently stands at 6.5% and with Pearson stating recently that it expects to maintain dividends at their current level and build its dividend coverage ratio over time, it could appeal to yield-hungry investors over the medium term.
Shares on the rise
Meanwhile, shares in actuator manufacturer Rotork (LSE: ROR) have risen by over 6% after the release of a positive trading statement. Order intake for the first quarter of the year increased by 2.5%, while sales increased by 0.7% and were aided by favourable exchange rates as well as the impact of acquisitions.
On the topic of acquisitions, Rotork also announced the purchase of US and Italy-focused Mastergear for $25m. The deal should provide Rotork with a broader range of products and services, while strengthening its position in the flow control sector. And with Rotork’s order book being 14% higher than at the same time last year, it seems to be in a strong position to deliver long-term growth.
With Rotork trading on a P/E ratio of 21.1, its shares appear to be fully valued at the present time. Therefore, while it’s a high quality business with a bright future, it may be best to wait for a lower price before piling-in.
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended Rotork. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.