Even though the stock only hit the market at the beginning of March 2017, it has been one of London’s worst performing investments over this period, losing around 75% of its value since coming to market. And today, the shares trading down once again after the group issued yet another profit warning. 

Struggling to remain relevant 

For the six months ended at 31 January 2018, the supplier of consumer goods brands booked revenue of just £48.4m, down from last year’s figure of £68.1m for the same period. While the company does say in its trading update that the first half of 2017 was unusually strong, it also goes on to say that 2018 is turning out to be an extremely tough year for ordering with many orders now falling into fiscal 2019 rather than the second half of 2018. Meanwhile, “retailer sentiment with regard to placing general merchandise orders in the short-term has not improved” and “lower volumes available to non-food suppliers, along with retailers’ desire to minimise increases in retail prices, has created an even more competitive environment than normal.” As a result of these issues, management now expects the firm to report underlying EBITDA of between £6m to £7m for fiscal 2018, which is significantly below current market expectations. Indeed, the market had been expecting the group to report a net profit of £6.1m for the year.

The one bright spot in the company’s performance update is a commitment to its dividend yield of 12.5% although with trading performance deteriorating, it’s difficult to see how management can accomplish this. 

A better income buy 

As it looks as if Up Global’s problems aren’t going to go away anytime soon, I would avoid this falling knife as there are plenty of other more attractive looking investments out there. One example is global mining giant Vedanta (LSE: VED). 

Like UP Global, Vedanta has been buffeted by some adverse headwinds over the past few years. However, the company has been able to recover steadily from these issues and now looks well placed to grow with commodity prices rising and an improved balance sheet. 

At the beginning of November, the company reported a near 40% jump in first-half earnings before interest tax depreciation and amortisation to $1.7bn thanks to higher commodity prices — an impressive recovery from last year’s loss of $5bn. As earnings grow, the group is also on track to reduce net debt to less than three times earnings from around $9bn. 

As Vedanta is majority owned by its founders and current management, they are incentivised to make the business as profitable as possible and work for all investors. That’s why I believe that the company is a fantastic income stock because its majority shareholders will not let the business go under as they have billions invested. 

Right now, the shares support a dividend yield of 6.6% and the payout is just covered by earnings per share. Next year, however, payout cover is set to hit 1.7 times as City analysts expect earnings per share to jump 82% thanks to further operational improvements and commodity price gains.

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And even as competitors have wilted in the face of recent industry-wide headwinds, Moss Bros continues to perform very well. In the half year to July, total revenue was up 4.3% to £66.6m as the company opened up four new stores to take its total to 129 and increased like-for-like (LFL) sales by 2.8%.

Management is growing same-store sales by making its retail outlets more appealing through refurbishments, focusing on developing a stronger marketing identity than its previous reputation as just a suit hire shop, and expanding its e-commerce reach. Thus far these changes are paying off, with sales up and operating profits increasing a full 16.6% year-on-year in H1 to £4.2m even as the weak pound led to higher input costs.

With cash balances of £21.5m in the bank at period end and reducing capex requirements as its store refit programme nears conclusion, management was able to return the majority of earnings directly to shareholders via a £4m interim dividend of 2.03p per share.

After more than doubling earnings in the last five years, the company’s shares now trade at only 16.4 times forward earnings. I reckon investors who aren’t put off by the sector’s low barriers to entry or cyclical nature could find Moss Bros’ income and growth potential a boon to their retirement portfolio. 

One for the contrarians 

A riskier option I have my eye on is UP Global Sourcing (LSE: UPGS), which currently offers a 5.4% dividend yield and trades at 11 times forward earnings. The company designs, markets and imports a range of consumer goods such as pots and pans, irons and vacuum cleaners from factories in Asia and sells them to retailers such as B&M, Tesco, Amazon, and Argos among many others.

The company’s sales have taken off in recent years, and were up 39% in the year to July, but its share price more than halved in early September after management warned that poor consumer confidence and the weak pound was causing customers to delay orders and that it expected no sales growth in 2018. That said, full-year results released this morning show the company is in a decent place to withstand the situation as its net debt is just £6m, or 0.5 times EBITDA.

While customers not committing to orders far in advance, as they were doing, is a worry, it’s not the end of the world if it’s only a short-term problem and consumer spending proves more resilient than expected. Furthermore, UPGS should remain solidly profitable even if margins move downward next year.

Indeed, analysts are expecting a 30% drop in earnings per share next year but still forecast some 7.6p in EPS that would safely cover current full-year dividends of 5.115p per share and keep the company’s balance sheet in impressive health. Investing in a company that just warned it expects no sales growth next year takes a more risk-hungry investor than myself, but if the economy is on sounder footing than retailers expect, now could be a chance to pick up fast-growing, high-income UPGS at a relatively bargain price. 

The post 2 bargain growth and income stocks that could help you retire early appeared first on The Motley Fool UK.

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Ian Pierce has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. 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.

Today shares in the company have been almost cut in half after it released a strong trading update but warned on its outlook. 

For the year ended 31 July, group revenue increased by 39.1% to £110m and off the back of this performance management now expects to report “underlying EBITDA and underlying PBT performances that are above market expectations” when official full-year figures are published. 

However, despite this upbeat statement, the results have been overshadowed by a warning regarding the company’s outlook. Specifically, today’s release noted that thanks to growing consumer caution and pull-back in orders from customers, “revenue growth for FY18 is unlikely.“

Does the business offer value? 

Up Global owns, manages and designs “an extensive range of value-focused consumer goods brands.” The group’s range of products currently consists of 3,000 product lines in 12 categories and brands such as Russell Hobbs. 

Up Global’s position reflects the wider view of the UK consumer, so it could be said that investors should have seen today’s warning coming. As inflation has picked up and wage growth has remained elusive, the UK consumer is being squeezed — that’s without considering the uncertainty provided by Brexit.  To help try and reduce its reliance on the UK, management has inked deals to open major retail accounts in Germany and so far, demand in this region appears healthy. According to today’s release, “given the group’s promising early progress there and the positive consumer data that is emerging from the region, the board sees significant potential for long term growth in this market.”  So, it looks as if this diversification will pay off over the long term. 

The big question is, how should investors react to today’s cautious trading statement? Shares in the company have fallen by 45% in early deals, which seems to be an overreaction, although, before the announcement, the shares were trading at a premium growth multiple of around 21 times forward earnings. Now that growth has evaporated, it makes sense that the shares should re-rate lower, but the market’s reaction seems to be overdone. 

After losing half their value, the shares now trade at a historic P/E of 11.1. As of yet, City analysts have not reconfigured their forecasts to reflect the lower growth expectations of management, so a historic P/E is the best way of valuing the business. This valuation seems to undervalue the business. 

The rest of the Household Goods Industry trades at a median P/E of 14.6, so Up Global is trading at a discount to the wider sector of 24%. Also, after recent declines, the dividend yield has spiked to 4.4%. The payout is covered twice by earnings per share. 

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Rupert Hargreaves does not own shares in any company 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.

I believe it can because the company’s share price is largely rising in line with stellar financial progress. Indeed, in its first report since going public, interim results covering the six months to January, sales jumped a full 62% year-on-year to £68.1m and pre-tax profits rose an even more impressive 72.5% in the period.

The key has been winning contracts to supply goods to retailers covering the value spectrum from Argos to Tesco and John Lewis. And as the company puts its products into greater numbers of stores, its margins steadily increase due to economies of scale from procurement, shipping, storage and distribution.

While margins aren’t incredibly high for the products it sources, EBITDA margins rose to 12.9% in the period and there is plenty of scope for them to expand as the company crowds out smaller competitors due to increasing financial strength and customer relationships. As it pushes these smaller rivals into financial difficulty it also opens up space for further growth through acquisition by buying up distressed brands at a discount.

It’s also reassuring to see the company is still managed by its founders, who together own around 40% of all outstanding shares. This level of insider ownership is almost always a boon for minority shareholders as it gives management a big stake in the business but not enough to run it as a private fiefdom.

With double-digit growth, a founder-led management team and healthy balance sheet with net debt at just 0.9 times EBITDA, I’m very interested in UPGS despite its shares trading at a pricey 20 times forward earnings.

Viva la revolución

One growth share trading at a more respectable valuation is Revolution Bars Group (LSE: RBG), which runs the eponymous Revolution and Revolucion de Cuba brands. The group trades at just 13.5 times forward earnings despite analysts pencilling-in expected EPS growth of 7% and 16% for the next two years.

This level of growth looks fully attainable for the company as it grew revenue by 12.7% year-on-year to £66.7m in the six months to December and increased adjusted EBITDA by 13.6%. And while adding four new sites to take the total estate to 66 accounted for much of this growth, it was good to see like-for-like sales rise 2% in the period, suggesting customers are finding the group’s bars an attractive place to spend their paycheques.

Furthermore, with such a small estate, no net debt and operations that fully cover the expense of opening new sites, there appears to be scope to continue growing for some time. For investors who aren’t put off by the cyclical nature of the restaurant business and consumers’ incredibly fickle tastes, Revolution Bars’ shares may prove a steal at their current valuation.

The post Is this new IPO the growth stock to retire on? appeared first on The Motley Fool UK.

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Ian Pierce has no position in any 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.