Investors hate uncertainty. This can be seen from stock prices drastically falling since February in the latest market crash.
When the economy picks up again, the leisure and non-essential retail sectors could be a barren landscape. Companies that have long carried high levels of debt might have fallen by the wayside, leaving stronger businesses to make the most of a clearer field. That’s why leisure and discretionary retail are industries I think deserves more attention in these times.
The word ‘leisure’ may conjure up images of pubs, restaurants and cafés. But the games category is a huge part of the leisure sector too. And Games Workshop (LSE: GAW), the maker of the popular game Warhammer, could be a stock worth investigating.
Recently, the shares were seen as a growth gem and were much-loved by UK investors.
However, in the year-to-date, its stock price has slumped by approximately 30%, as investors anticipate the effect that temporary store closures will have on the group’s performance.
Despite this drop, the Games Workshop share price has gained over 700% in the past five years, and at 20, its P/E ratio might look high. However, the business doesn’t require extensive capital, and I believe the company is well-protected against rivals.
The business has also been generating a healthy profit, reporting £58.6m of pre-tax profit in its half-yearly results, which were released in January.
Now could be a great opportunity to buy!
Greggs (LSE: GRG) is another share that I loved before the coronavirus outbreak. Yes, it’s a food retailer, but its Steak Bakes are as much treats (albeit affordable ones) as essentials.
The baker/food-to-go specialist, is loved for those Steak Bakes and its sausage rolls and made headlines with its vegan offerings. Investors supported its willingness to adapt to the times as much as its customers did, pushing the shares up by 45% in the past five years, despite a 36% drop in the last three months due to the market crash. This fall brings its P/E ratio down to 16.
Regarding the coronavirus outbreak, the business has temporarily closed its shops, and won’t be paying its final dividend that was due in May. It has also stopped the programme of share purchases by its Employee Benefit Trust. Greggs hopes that these steps will avoid approximately £40m of cash outgoings this year.
In 2019, like-for-like sales grew by 9.2% and profit increased by 27.2%, to £114.2m. If it can reach these numbers again, investors who buy now could be very happy.
JD Sports (LSE: JD) has suffered major disruption from the coronavirus outbreak, and has temporarily closed most of its stores in the UK, Europe and US. While the company is still selling its items online, this will only go some way towards mitigating these closures.
The JD Sports share price has fallen by 50% in the past three months, bringing its P/E ratio down to 14.
Prior to the crisis, the company had a strong balance sheet, with its FY19 results showing a 50% increase in revenue. Profit before tax for the group also increased by over 15%, to £339.9m.
CEO Peter Cowgill has said the group is “confident that we will emerge from the current challenges in a strong position to resume our previous positive momentum.“
With its previous record of profit growth, now might be the time to buy.
T Sligo 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.