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I don’t care about these sub-10 P/E ratios! I’d avoid these turnaround stocks at all costs

Battered FTSE 100 stock Centrica (LSE: CNA) is expected to report a mega double-digit earnings comeback in 2020. Is this realistic? I’ve recently mentioned my fears a shocking set of full-year financials could be lurking around the corner. News this week underlines my belief that tough conditions will remain in play too.

In response to falling wholesale prices, Ofgem said it would reduce the sums suppliers can charge customers. From April, price caps on energy bills will be cut by £17 per year, to £1,162 for those on dual-fuel energy tariffs, and to £1,200 for pre-pay customers. It’s estimated that this will help some 15m UK households.

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Such regulatory action has played havoc with Centrica’s bottom lines in recent times. The rising appetite of British customers to shop around for a better deal has also caused significant distress. And neither of these problems appear to be going away any time soon.

Centrica’s low forward P/E ratio of 9.3 times makes it extremely cheap on paper. But clearly it comes at a cost, thanks its high risk profile. For this reason I’m happy to ignore its undemanding earnings multiple — as well as its bulging 5.9% dividend yield — and use my hard-earned cash to invest elsewhere.

A shaking moneymaker

Would De La Rue (LSE: DLAR) be a better buy for value-hungry investors? It might not offer a dividend but it certainly offers superior value to Centrica from an earnings perspective. For the fiscal year to March 2021, it trades on a forward P/E multiple of 7.7 times.

City analysts are expecting earnings to rebound in the upcoming period. Indeed, a mighty 63% increase in annual profits is on the cards, according to current forecasts. However, in my opinion, the chances of any bounceback is as remote as the 30% rise predicted over at Centrica.

The world’s move towards electronic forms of payment and away from cash has been playing havoc with moneymaker De La Rue for years. Recent trading data has shown that the horrors aren’t showing signs of letting up either. Revenues from its core Currency business tanked nearly 30% in the six months to September, causing the firm to swing to a £12.1m pre-tax loss, from a £7.1m profit a year earlier.

Going to the wall?

This wasn’t the biggest fright in the most recent release. Nor was De La Rue’s decision to axe the dividend. Instead, the company’s comment that there’s “significant doubt” surrounding its ability to continue as a going concern because of high debt levels drew the hard headlines.

The small-cap is clearly stuck in a hole. And there’s little reason to expect it’ll pull itself out. A recent report from PayPoint shows just one in five Britons don’t carry any cash in their wallets, further illustrating the steady decline.

This is a share with a clearly precarious future and one which I’m not prepared to gamble my cash on.

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Royston Wild 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.