The recent share price performance of beverages retailer Conviviality (LSE: CVR) has been hugely disappointing. The company has seen its valuation decline by 75% since the start of the year after it released details of a material error which affected its financial forecasts.
However, the company now seems to offer a wide margin of safety which could lead to a rising stock price in future. But it’s not the only stock which could offer growth at a reasonable price. Reporting on Tuesday was another company that could be worth buying right now.
The company in question is cellular material technology specialist Zotefoams (LSE: ZTF). It reported a record 2017 financial year for sales and profits. Revenue increased by 22% to £70.15m, experiencing strong growth across its business. This helped to push reported profit, before tax and exceptional items, to an all-time high of £8.81m. This is an increase of 22% and shows that the company’s strategy appears to be sound.
During the period, Zotefoams was able to complete its major US capacity expansion investment that’s now producing high-quality foam. The company is also investing in capacity expansion as it prepares for future growth. And while the macroeconomic environment remains uncertain, near-term growth potential remains high.
Looking ahead to its performance in the current year, the stock is expected to record a rise in earnings of 8%. This is expected to be followed by growth of 24% next year. This puts the company on a price-to-earnings growth (PEG) ratio of just 0.9, which suggests that it offers excellent value at the present time. As such, now could be a good time to buy it for the long term.
Conviviality could also deliver share price growth in future. Certainly, investor sentiment is likely to remain weak in the near term after forecast news was released. This may have hurt confidence in the company’s future prospects and its ability to generate accurate forecasts. However, if it’s able to deliver on its current guidance, then it would be unsurprising for investor sentiment to gradually improve.
With the stock forecast to post a fall in its bottom line of 17% in the current financial year, its share price may remain subdued in the near term. However, with growth in earnings of 2% forecast for next year, followed by 13% in the year after, a turnaround could be on the cards. And with the company trading on a PEG ratio of 0.3 following its recent share price fall, it appears to offer a wide margin of safety.
Of course, the prospects for UK retailers remain challenging. Consumer confidence is low and this could hurt spending levels. But with such a low share price, Conviviality seems to be a worthwhile turnaround stock for the long term.
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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. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.