Falling share prices can continue for a prolonged period of time in some cases. In other instances, though, they may offer buying opportunities for long-term investors. Clothing retailer Superdry (LSE: SDRY) made the mainstream headlines on Monday due to a share price decline of as much as 20% following a profit warning.
Likewise, ITV’s (LSE: ITV) share price performance has disappointed recently. It is down by over 10% in the last four months due in part to challenging operating conditions.
Given their lower valuations following share price declines, could either stock offer investment appeal? Or, are they best avoided given their uncertain outlooks?
Superdry’s trading update released on Monday showed that the company has experienced challenging trading conditions. Unseasonably warm weather across key markets has meant that demand for its autumn/winter product, which accounts for 45% of its annual sales, has been weaker than expected. This is due to negatively impact profits for the full year by £10m, although the company is addressing the issue through an 18-month product diversification and innovation programme which aims to broaden choice for consumers.
Additionally, the company has been hit by foreign exchange mechanisms which have not provided the same degree of protection as anticipated. This is expected to lead to £8m of additional foreign exchange costs. The company now expects to report mid-single-digit global brand growth for the full year, with it now seeking to invest more heavily in its online capabilities as customers move further towards digital consumption.
Looking ahead, Superdry’s stock price could come under further pressure. Investor sentiment could remain weak – especially if trading conditions remain challenging. But with a strong brand, what appears to be a sound strategy and a track record of growth, now may be the right time to buy the company while its shares offer a wide margin of safety.
As mentioned, the ITV share price has also disappointed recently. It has declined by over 10% in the last four months, with difficult operating conditions being a key factor. Despite a slowdown in growth, the company appears to be putting in place a sound long-term strategy. The potential for acquisitions remains high given what are relatively low valuations in the wider media industry. With a strong balance sheet, the company could seek to strengthen its operations in the coming months.
Alongside this, the strength of its production segment could act as a catalyst on overall growth. And with its operational performance being sound, it may emerge from the current period of slow growth in a stronger position relative to its rivals.
With a price-to-earnings (P/E) ratio of less than 12, ITV seems to offer good value for money. Its 5.1% dividend yield is covered 1.9 times by profit, which suggests that dividend growth could be impressive. Certainly, additional share price volatility may be ahead. But with a low valuation and a sound strategy, now could be an opportune moment to buy it for the long run.
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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV and Superdry. 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.