It can be hard to decide whether to buy into a stock that’s rising or snap up one that’s falling. Here I’m taking a peek at one of each, both of which look good to me.
Shares in Somero Enterprises (LSE: SOM) have climbed by 150% over the past two years, but even at 281p I’d say they still look good value.
Full-year results reported on Wednesday showed a 22% rise in pre-tax profit and a 23% rise in adjusted net income per share. Net cash soared by 60% and the company was able to to hike its dividend by 61% to 11.1 cents per share.
CEO Jack Cooney spoke of “record revenues, profits, and cash flow” and “the strongest balance sheet in our history“. And speaking of the firm’s prospects for 2017 he enthused
“We are financially stronger than ever, have the broadest product portfolio in our history and have made significant investments to increase our global reach“.
Sounds great, but what does the company do?
It produces laser-guided equipment for laying and levelling flooring, and offers products that include laser screed machines, concrete hose line-pulling and placing systems, ride-on screed products… No, I don’t know what they are either, but sales are growing strongly in North America, Europe, Australia and China.
On a fundamentals front, Somero shares are on forward P/E multiples for this year and next of around 11, with no real EPS growth forecast for the two years overall. But in the light of these results and the firm’s upbeat outlook, I can see those being re-rated upwards in the coming months. As a result, I think Somero shares are good value.
There’s quite a contrast to the share price performance of STM Group (LSE: STM) — it’s fallen 40% over the past 12 months. But the slide over the past week or so has been halted, at least for now, by a pretty decent set of full-year results.
The financial services firm saw an 8% rise in revenue in 2016, although that translated to ‘no change’ in EBITDA or in earnings per share, both of which remained static. But the balance sheet looks better, with cash and equivalents up 49% to £11.9m, and the full-year dividend was lifted 67% to 1.5p per share.
It was a year that saw the acquisition of London & Colonial Holdings, a SIPP and life assurance business, and STM reckons that its integration should result in cost savings of around £500,000.
Chief executive Alan Kentish said that the recent budget will have an adverse effect on this year’s profits, but he still expects to see growth over 2016. Forecasts for a 48% rise in earnings per share are probably now optimistic and will need to be scaled back, but I’m confident we’ll still be looking at a forward P/E of under 10 and an attractively low PEG ratio.
On top of that, dividends are likely to yield a well-covered 4% or so this year, and STM told us that its improved cash generation “allows the business to continue its dividend policy” while still having plenty of cash to spare. There hadn’t been a dividend from STM for a few years before 2015, but I’m liking the look of this new progressive dividend policy — and I see the recent share price weakness as a buying opportunity that should yield nice profits over the next few years.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Somero Enterprises, Inc. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.