MENU

Why the IWG and RBS share prices look set to storm back against the FTSE 100

Image source: Getty Images.

With the IWG (LSE: IWG) share price falling by 20%+ on Monday, investors may feel nervous about buying a stake in the workspace provider. However, the main reason for the share price fall is that the company has terminated talks with potential bidders. The stock market had included a bid premium, which now seems to have been removed following the news that there is unlikely to be a bid approach.

Of course, IWG is not the only stock which has recorded a disappointing share price performance of late. RBS (LSE: RBS) is down by 15% since the end of May 2018. Both companies, though, could beat the FTSE 100 over the medium term.

Growth potential

Alongside news that it has terminated discussions with potential suitors, IWG also released a positive set of interim results. They show a rise in revenue of 7.4%, with it reaching £1,204m. While operating profit moved 29% lower to £60m, this was partly due to the major investment that the business is making in growth opportunities and marketing spend. It expects to meet forecasts for the current year, with the stock due to record a rise in earnings of 13%. And with further growth of 21% due next year, the business appears to be moving in the right direction.

Of course, there has been continued weakness in the UK. This contributed to its falling operating profit, and is rather unsurprising given the lack of confidence among businesses ahead of Brexit. Further underperformance within the UK could be ahead, although in the long run the prospects for the wider group appear to be impressive.

Since IWG trades on a price-to-earnings growth (PEG) ratio of around 0.9, it seems to offer good value for money. Although likely to be volatile, it has the potential to beat the FTSE 100 in the long run.

Improving outlook

Also having the capacity to deliver a successful share price turnaround is RBS. Its recent update showed that its underlying performance is improving, and the bank remains on track to deliver a rise in earnings of around 9% next year. This could stimulate investor sentiment and lead to a higher share price – especially with the stock having a PEG ratio of 1.2 at the present time.

Of course, the big news regarding RBS in recent weeks has been its decision to recommence dividends after a decade of no payments to shareholders. This has been expected for some time, but what the stock market may not be pricing-in is the company’s ability to hike dividends at a fast pace over the next few years.

For example, in the 2019 financial year the stock is due to pay out 15.4p in dividends per share versus 8p in 2018. This puts it on a forward yield of 6.2%. With dividends set to be covered 1.9 times by profit next year, they appear to be sustainable and highly attractive. As such, now could be the right time to buy the stock.

You Really Could Make A Million

Of course, picking the right shares and the strategy to be successful in the stock market isn't easy. But you can get ahead of the herd by reading the Motley Fool's FREE guide, "10 Steps To Making A Million In The Market".

The Motley Fool's experts show how a seven-figure-sum stock portfolio is within the reach of many ordinary investors in this straightforward step-by-step guide. Simply click here for your free copy.

Peter Stephens owns shares of Royal Bank of Scotland Group. 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.