Since the start of the year, Lloyds (LSE: LLOY) has struggled to deliver positive share price growth. The company’s 15% decline in valuation has lagged the FTSE 100’s fall of 5% during the same time period, and shows that investors have become increasingly cautious about its future prospects. With a low valuation, though, a margin of safety now appears to be on offer.
Of course, it’s not the only share which has disappointed so far in 2018. Reporting on Monday was a smaller company which has lagged many of its industry peers during the same time period. Could it offer turnaround potential alongside Lloyds?
The company in question is video game developer and publisher Codemasters (LSE: CDM). It reported a relatively positive performance in the first half of its financial year. Revenue of £39.7m was generated during the period, with digital sales as a proportion of revenue continuing to increase. They represented 53% of total sales during the period, with the company’s gross margin being 88.5%.
A net cash position of £17m suggests that the company’s financial standing is relatively sound. It has a pipeline of new products which could catalyse its financial performance, while the release of the annual instalment of its F1 game has been successful. It has received a Metacritic rating of 84%, and has been number one in the sales charts of 11 different countries.
With Codemasters’ share price having fallen by a third since its IPO a few months ago, investor sentiment seems to be downbeat. However, the company appears to be performing well, and with video games set to remain popular it could be of interest to less risk-averse investors.
As mentioned, Lloyds has also been an unpopular share this year. The company’s share price fall means that it now has a price-to-earnings (P/E) ratio of 9.1, while its dividend yield stands at 5.7%. Both figures suggest that there may be a margin of safety on offer at a time when the company is seeking to leverage its dominant position in the UK banking sector.
It is rumoured to be moving ahead with plans for a joint venture with Schroders that will see the two companies work together on a wealth management business. This has the potential to become a highly-profitable business for Lloyds, and could help to grow its earnings at a time when the prospects for the UK economy are somewhat weak.
The bank’s improving balance sheet could provide it with the financial strength to invest in new growth areas, while also offering greater resilience than the stock market is pricing in. As such, now could be a good time to buy, with its long-term outlook appearing to be sound. Given that the chances of a Brexit deal seem to have increased recently, UK shares could become more popular over the medium term.
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Peter Stephens owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. 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.