The prospects for buy-to-let continue to be uncertain at the present time. Brexit-related volatility is high, and this could impact on rental growth within the sector.
The prospect of rising interest rates may also cause returns within the industry to fall, while tax changes could increase the risk of buy-to-let investments over the medium term.
Of course, shares such as BT (LSE: BT.A) have experienced challenging periods. Its market value has declined heavily after what has been a period of lacklustre performance. However, on a risk/reward basis it could offer greater potential than property investment, alongside another falling stock which released a disappointing update on Monday.
Challenging outlook
The company in question is innovative floorcovering specialist Victoria (LSE: VCP). Its trading update showed that challenging market conditions have continued, but that it has enjoyed success in increasing its market share. Although lower margins have been experienced as a result of the company absorbing increases in raw material prices, it’s been able to generate improving like-for-like sales growth in recent months.
Looking ahead, the company is aiming to improve margins. Alongside rising sales, this could lead to a stronger business in the long run. In the short term, though, investor sentiment may continue to deteriorate, with the company’s share price having fallen by 13% following the update.
As such, Victoria appears to be a relatively risky stock to own at present. However, with what seems to be a sound strategy that focuses on its long-term growth prospects, its price-to-earnings (P/E) ratio of 12 could hold appeal for less risk-averse investors.
Turnaround prospects
Also experiencing a falling share price has been BT, with the telecoms giant down by almost 50% from where it traded four years ago. Of course, the last year in particular has seen a number of major changes take place at the business which could have a significant bearing on its future operational and financial performance.
The replacement of its CEO has taken around eight months to complete following the original announcement in June 2018, with Philip Jansen taking on the role at the start of this month. As such, it could be argued that the company has been in an uncertain period in recent months, since its long-term strategy could change during the course of 2019 following a revision to its senior management team.
In terms of its recovery potential, the stock’s P/E ratio of 9 indicates that it may trade at a discount to its intrinsic value. Although its recent results have shown slow levels of top- and bottom-line growth, the company expects the benefits of a transformation plan to become clear over the medium term.
Therefore, there could be an opportunity for a recovery in the BT share price, since its risks appear to be priced in. Over the long run, this could enable it to offer a higher return than other assets, such as buy-to-let properties, due in part to the aforementioned challenges that they face.
