These three companies have all released updates today. Could those updates they mean the trio is set to rise by 30% over the medium to long term?
Packaging and paper specialist Mondi (LSE: MNDI) has released an upbeat set of results for the first half, with its underlying operating profit rising by 8% on the year. Furthermore, underlying earnings have risen 11%, with operating cash flow up 15% and return on capital employed at an impressive 21.2%.
Looking ahead, Mondi’s strategic acquisitions should enhance the performance of its packaging portfolio, while its capital projects continue to deliver strong growth potential. However, with it forecast to record a rise in earnings of just 3% next year, its current valuation appears to be rather generous. It trades on a price-to-earnings (P/E) ratio of 13.5 and with its shares yielding 3%, it lacks income appeal – especially when dividends are due to rise by just 3.3% next year.
Therefore, while Mondi is performing well as a business, it seems to lack that 30%-plus upside. As such, it may be worth awaiting a lower share price before buying it.
Pets At Home
Also updating the market today was Pets At Home (LSE: PETS). The pet food and product retailer’s first quarter update shows that it’s making encouraging progress, with like-for-like (LFL) sales rising by 2.7%. They were driven by Advanced Nutrition, omnichannel, vet and grooming services, as well as a return to positive sales figures for the company’s Health & Hygiene products.
This strong LFL performance meant that Pets At Home’s total sales rose by 8.9%, with four new retail outlets, three veterinary practices and six grooming salons opened during the period. Allied to this growth was a rise of 200,000 in Pets At Home’s VIP club members, with the total number now standing at 3.5m and offering repeat sources of sales.
Pets At Home is forecast to record a rise in net profit of 4% next year, which is somewhat disappointing as it’s lower than the wider market’s expected growth rate. Weakness in the UK economy could be a key challenge for Pets at Home and with its shares trading on a P/E ratio of 15.8, the chances of a 30% share price rise seem somewhat slim.
Meanwhile, shares in betting company Ladbrokes (LSE: LAD) are flat today after the release of its half-year results. They show a 13.1% rise in sales as well as an increase in earnings of over 41%. This shows that the company’s customers are responding positively to Ladbrokes’ new strategy, with its marketing spend and accelerated delivery on its multi-channel programme generating strong growth in staking, actives and sales.
Of course, Ladbrokes admits in today’s update that it has enjoyed favourable sporting results and that customer-friendly results will inevitably return in the future. However, with its merger with Coral going ahead as planned and its balance sheet looking healthier following a reduction in net debt to £227m, its long-term outlook remains positive.
With Ladbrokes trading on a price-to-earnings growth (PEG) ratio of just 0.7, it seems to offer a favourable risk/reward ratio. While Brexit may hurt its near-term performance, Ladbrokes nevertheless offers at least 30% upside over the medium-to-long term based on its improving performance and low valuation.
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Peter Stephens has no position in any shares mentioned. 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.