The last three months have been disappointing for FTSE 100 investors. The index has declined by 7% during that time, with investors becoming increasingly uncertain about the prospects for the world economy.
The last few months, though, have been much worse for investors in easyJet (LSE: EZJ). The company’s value has declined by 28% in the last three months, which suggests that there’s been a step-change in investor sentiment.
Now though, the company appears to offer a wide margin of safety. As such, it could be worth buying for the long term, alongside another potential recovery share which released a positive update on Wednesday.
The company in question is education specialist Pearson (LSE: PSON). It released a nine-month trading update which indicates that the company’s financial outlook is set to drastically improve. It’s on track to meet guidance for the current year, with its focus on digital transformation set to catalyse its top and bottom lines. It’s also on course to deliver £300m of annualised cost savings, with the full benefits set to accrue from the end of 2019 onwards.
Clearly, Pearson still has some way to go until it’s back to full health. But with the company expected to post a rise in earnings of 12% in the next financial year, its strategy appears to be working well after a disappointing few years. And since it trades on a price-to-earnings growth (PEG) ratio of 1.6, it could offer a margin of safety at the present time. As such, and while it could prove to be a volatile share compared to index peers in the remainder of the current financial year, it may provide further capital growth potential.
Strong business model
As mentioned, the performance of easyJet has disappointed from an investment perspective in recent months. As a cyclical business, the company seems to have suffered to some extent from concerns surrounding world economic growth. Brexit uncertainty could also pose a threat to its near-term performance.
That said, the airline is expected to post a rise in earnings of 18% in the current financial year. Its strategy seems to be working well, with a disciplined focus on costs set to contribute to a stronger business model over the medium term. It may also benefit from capacity constraints among rivals, while improved load factors are having a positive impact on its operational performance.
Clearly, there could be further volatility ahead for the company. Its shares may come under additional pressure in the near term. But with a PEG ratio of around 0.6, it seems to offer good value for money from a long-term investment perspective. Alongside this, a dividend yield of 4.9% from a payout that is due to be covered twice by profit this year, indicates that its total return prospects appear to be impressive versus the rest of the FTSE 100.
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