Is the RWS share price a bigger bargain than this FTSE 100 peer after 15% fall?

Does RWS Holdings plc (LON: RWS) offer more upside potential than a FTSE 100 (INDEXFTSE: UKX) sector peer?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The share price of language, intellectual property support services and localisation provider RWS (LSE: RWS) declined by around 15% on Tuesday. The company released a half-year trading statement which showed that while it has performed well on an underlying basis, it is being impacted negatively by exchange rate headwinds.

As such, investor sentiment appears to have declined dramatically. Could this make it a stronger investment opportunity than a support services peer which currently resides in the FTSE 100?

Uncertain outlook

In the first half of its financial year, RWS was able to achieve revenue which was in line with expectations. In fact, it increased from £76.6m in the first half of the prior year to £139.6m. The company expects to deliver adjusted pre-tax profit of at least £30m for the first half of the year on a constant currency basis.

However, with the pound strengthening in recent months, it means that the figure could be lower when the impact of currency changes are factored in. An adjusted pre-tax profit of £28.3m is anticipated for the first half of the year when the currency impact is included. Should the currency effect remain as it has been in the first half of the year, the company may miss its profit guidance for the full year.

Despite this, the performance of RWS remains relatively strong. Its acquisition of Moravia has the potential to make a significant impact on its future growth rate. And with growth across its key divisions being strong, it seems to be in a favourable position to generate improving financial performance.

Since the stock is expected to report double-digit earnings growth over the next two years, it appears to be a worthwhile buy. That’s especially the case since it now has a price-to-earnings growth (PEG) ratio of just 1.1. As such, and while its share price could be volatile, it may prove to be a profitable investment.

Solid performance

Also offering upside potential within the support services sector at the present time is G4S (LSE: GFS). The company now seems to be back on track after a challenging period, with its bottom line growing in each of the last two years. More growth is forecast in the current year, with its earnings expected to rise by 8%. This is due to be followed by growth of 9% next year, which puts the stock on a PEG ratio of 1.4. This suggests that it offers good value for money for the long term.

G4S may also prove to be a strong income stock in the long run. It is expected to deliver a 4% dividend yield in the current year. Since dividends are forecast to be covered twice by profit, they seem to be sustainable. And when its growth prospects are factored in, it could become a more desirable income play over the medium term.

As such, and while it may not offer the most exciting business model at a time when investor sentiment is generally upbeat, the company seems to have a solid mix of growth, income and value credentials for those with a long view.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of RWS. 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.

More on Investing Articles

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »