Share prices across the FTSE 100 and the wider UK stock market have fallen significantly in recent months. The main index is down by around 10% from its all-time high in May, with investors seemingly concerned about factors such as a global trade war and rising US interest rates.
Shares such as KAZ Minerals (LSE: KAZ) and Warpaint London (LSE: W7L), though, are down much more than most stocks. Following a hugely challenging period, could they now offer wide margins of safety and strong recovery potential?
Supplier of colour cosmetics, Warpaint London, recorded a 40%+ share price fall on Monday following the release of a profit warning. Although trading in the US and the EU has remained robust, its performance in the UK has been disappointing. Retailers are reducing stock levels and Christmas orders, which is a significant problem for the business since the UK accounts for 44% of its total revenue.
The company now expects revenue for the 2018 financial year to be between £48m and £52m. Profit before tax is due to be between £8.5m and £10m, although these figures are clearly highly dependent upon the near-term performance of the company’s UK operations. Given that consumer confidence is expected to weaken over the short run, the prospects for the stock could be highly uncertain.
With Warpaint London now trading on a price-to-earnings (P/E) ratio of around 12.3 using last year’s earnings figure, I think it could offer good value for money. However, with the prospects for the UK retail sector being highly dependent upon the outcome of Brexit negotiations, I feel it may be worth waiting for further updates before buying the stock.
The performance of the KAZ Minerals share price in the last year has been hugely disappointing. It has declined by around 40%, with investors becoming increasingly concerned about the global growth outlook in recent months. With the prospect of further tariffs being placed on imports and the potential for a higher US interest rate, the resources sector has been hit relatively hard.
Despite this, the medium-term outlook for the copper and gold markets appears to me to be relatively sound. Demand growth is set to remain robust, while a lack of supply in the copper industry could lead to a buoyant price. This could be beneficial to KAZ Minerals, and may mean that its ramp-up in production helps it to deliver on its optimistic growth targets.
With the company now trading on a price-to-earnings growth (PEG) ratio of 0.5 following its share price fall, it could offer a margin of safety. Clearly, it is a relatively volatile stock that could experience further paper losses over the near term. But with what seems to be an improving financial position, as well as a 2.6% dividend yield that is due to be covered more than 10 times by profit in the current year, I think its long-term growth potential could be high.
Peter Stephens has no position in any of the shares mentioned. 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.