With shares in online takeaway ordering company Just Eat (LSE: JE) falling by 13% since the turn of the year, now could be a great time to buy them. That’s because the market for online takeaway companies is likely to rapidly rise in future years, with Just Eat’s forecasts providing evidence of the sharp increase in profitability that may lie ahead.
For example, Just Eat is expected to record a rise in its bottom line of 58% in the current year, followed by a further increase of 48% next year. This equates to a rise in the company’s net profit of around 134% in just two years and yet the market doesn’t yet appear to have fully priced-in such a step change in profitability. In fact, Just Eat trades on a price-to-earnings growth (PEG) ratio of only 0.6, which indicates that there’s at least 25% upside potential over the medium term.
Furthermore, with Just Eat being geographically well-diversified, it offers reduced risk compared to a number of other stocks. This makes its margin of safety even wider and while its shares may fall further in the short run due to weak investor sentiment, they remain a top-notch buy for the long term.
Good time to buy?
Similarly, Debenhams (LSE: DEB) offers strong capital gain potential. Although the UK retail sector has evolved in recent years, Debenhams appears to now have a sound strategy through which to increase profitability after a challenging period. Notably, it’s seeking to focus on margins rather than short-term sales growth and with disposable incomes in the UK rising in real terms for the first time in a number of years, this is set to deliver rising profitability in each of the next two financial years.
Despite this, Debenhams trades on a price-to-earnings (P/E) ratio of just 9.2, which indicates that there’s at least 25% upside potential on offer. Were Debenhams to trade higher by that amount, it would lead to a P/E ratio of 11.5, which would still be cheap relative to a number of its sector peers. Therefore, now seems to be an excellent time to buy it.
Fast evolution
Meanwhile, Tesco (LSE: TSCO) remains a rapidly evolving business. It’s likely to make asset disposals in future as it seeks to sell-off non-core operations so as to become a more efficient and leaner business. Similarly, it has made improvements to its supply chain and sought to reduce the number of products it stocks as it bids to become increasingly efficient.
Clearly, this process will take time, but with Tesco forecast to increase its earnings by 38% in the next financial year, it seems to be making excellent progress. And due to Tesco’s shares trading on a PEG ratio of 0.5, they offer substantially more capital gain potential than 25%. Moreover, it would be of little surprise for Tesco to comfortably outperform the wider index – especially since wage growth in the UK is set to outpace inflation over the medium term.
