The last six months have seen the share price of online fashion retailer Boohoo (LSE: BOO) come under pressure. Its value has fallen by around 25% even though its investor updates have generally shown that the business is making progress in terms of sales and profit growth.
Clearly, a wider fall in the stock market is likely to have been a factor in the stock’s decline. Although there may be further volatility ahead, could it prove to be a bargain buy after its recent fall?
The prospects for the UK and global economies seem to be more uncertain than they have been for a number of years. In the UK, Brexit talks seem to have progressed in recent months but there is still further progress to be made before a deal can be signed. As such, the pressure on consumers from a weaker pound and higher inflation could increase over the coming months and lead to companies which operate in the UK seeing their valuations decline.
Similarly, disappointing economic data from the US alongside higher inflation could lead to worsening expectations for the global growth rate. Higher interest rates in the US may also initiate a slowdown in economic activity which could hurt global operators such as Boohoo over the medium term.
Despite the uncertainty facing the UK and global economies, Boohoo’s valuation suggests that it offers a wide margin of safety. Investors appear to have priced-in potential difficulties in terms of the operating environment, with the stock trading on a price-to-earnings growth (PEG) ratio of just 1.4. This indicates that there could be significant upside potential on offer in the long run.
With Boohoo’s latest trading update showing that it has delivered strong growth across all of its brands, it seems to have a sound strategy. A further focus on improving the customer proposition as well as in offering greater value for money could mean that its stock price generates high returns in future.
Also offering impressive total return potential is bonding solutions and adhesive-based products specialist Scapa (LSE: SCPA). The company released a positive year-end trading update on Thursday which showed that is has made further progress since its interim results.
In its Healthcare division, revenue grew by 3.8% for the year despite currency headwinds in the second half. Investment in the integration of two technology transfers is expected to result in margins that are above 15%. In the company’s Industrial division, there has been further progress on the delivery of the asset optimisation strategy. The restructuring of the Asian operations of the business could lead to further improvements in margins in future.
With Scapa forecast to post a rise in its bottom line of 10% per annum over the next two years, it appears to offer a bright future. Its share price may have been flat over the last six months, but could now deliver strong capital growth in the coming years.
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Peter Stephens owns shares of Scapa Group. The Motley Fool UK has recommended boohoo.com. 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.