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I think it is fair to say that the former growth darling Ted Baker (LSE: TED) has fallen from grace over the past 12 months. Following the recent resignation of boss Ray Kelvin (who was essentially forced out after lawyers began an investigation into his conduct), a few weeks ago the company published a downbeat set of results for its recently-ended 2019 financial year. Management reported “very difficult trading conditions” across the group during the period and while revenues increased 4.4% for the year to 26th January, the firm reported a huge 26% reduction in pre-tax profit to £50.9m.

Unsurprisingly, these problems have prompted investors to sell up and move away from the business. Since the beginning of May last year, the stock has fallen by around 44% and now trades at a P/E of just 11 compared to its historical average of approximately 25.

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Trying times 

As my colleague Paul Summers recently pointed out, after these declines, the stock does look attractive compared to its historical valuation, and I am inclined to agree. It’s notable that while profits took a hit last year, revenues continue to expand, which shows consumers are still drawn to Ted Baker’s offering.

With this being the case, I think it might be worth taking a punt on the business today. The fact that sales are still growing suggests that the market may have overreacted to recent bad news and it could be worth taking advantage of the low share price. On top of the discount valuation, the stock also supports a dividend yield of 4.6%, so investors will be paid to wait for any turnaround.

As well as Ted Baker, I think global advertising giant WPP (LSE: WPP) is also worth investing in as a turnaround opportunity.

Double your money 

Ted Baker and WPP have a lot in common. Both companies have lost their CEOs due to allegations of misconduct, and both have reported struggling growth due to challenging market trends.

WPP reported an 18% decline in earnings per share for 2018 and City analysts don’t expect the drop to stop there. They’ve pencilled in a further slump of 12% for 2019. However, even after this contraction, the company is still set to earn 102p for 2020 according to current projections, which puts the stock on a forward P/E of 8.5.

I think this multiple undervalues this global advertising giant. Even though it has fallen on hard times recently, the company remains the largest advertising group in the world and I reckon it will only be a matter of time before growth returns.

Management is trying to attract customers back to the group with its all-encompassing offering, which means it can offer a range of services most other providers cannot. I firmly believe that over the long term, WPP’s size and experience will help the company pull through and, when it does, the stock could be worth almost double what it is today as the shares have historically changed hands for around 15 times earnings.

As well as the low valuation, shares in WPP also yield 6.9% so, once again, investors will be paid to wait for the turnaround. 

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Rupert Hargreaves owns no share 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.

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