Is Now The Perfect Time To Buy Hornby Plc, Unilever plc & Vodafone Group plc?
Shares in international hobby products company Hornby(LSE: HRN) have soared by as much as 33% today after it announced the departure of its CEO Richard Ames with immediate effect. This follows the recent profit warning by the company, with it now expecting to report an underlying loss before tax of between £5.5m and £6m for the full year.
This is partly due to a disappointing performance over the New Year period that's expected to contribute a deterioration in trading profit of between £2.5m and £3m. As a result, there's a risk that Hornby will breach a covenant of its banking facility as early as March, which is clearly worrying news for the company's investors.
Although today's news has been warmly received by the market and Hornby is making progress with its restructuring plans, it appears to be a stock to watch rather than buy at the present time. There could be further challenges ahead in terms of its financial performance since there's no guarantee that trading will pick up moving forward. And with a new CEO to be found, as well as the company's unstable financial footing, there appear to be better options elsewhere.
While Vodafone(LSE: VOD) hasn't released a profit warning, its financial performance has been hurt in recent years due to its exposure to Europe. And with Vodafone being more exposed to Europe than ever following the sale of its stake in North America-focused Verizon Wireless, as well as multiple European acquisitions, the slow growth of the eurozone has put its bottom line under a degree of pressure.
However, this is due to change since Vodafone is expected to increase its earnings by 19% in the next financial year. And with Vodafone expanding its product range through broadband services as well as investing in infrastructure, its long-term future appears to be rather bright. Add to this a yield of 5.5% and interest rates due to stay low over the coming years, and Vodafone could prove to be a strong source of total returns.
Meanwhile Unilever's (LSE: ULVR) share price has also been held back by its geographic exposure. With it having a bias towards emerging markets and being focused on China for its long-term growth prospects, its shares have risen by just 3% since the turn of the year. That may sound like a strong performance relative to the FTSE 100 (which is down by 6% in the same period) but when you consider that Unilever trades at a discount to many of its global consumer peers, its future share price performance could be much better.
For example, Unilever has a price-to-earnings (P/E) ratio of 21.7 and with a peer such as Reckitt Benckiser having a P/E ratio of 24.6, there's upward rerating potential on offer. Add to this Unilever's excellent cash flow and sound balance sheet and it appears to offer a highly favourable risk/reward ratio for the long term.
Certainly, Chinese growth may disappoint in the short run and hold its shares back, but in the long run the growth of China's middle-income earners is likely to boost Unilever's sales and profitability.
Peter Stephens owns shares of Unilever and Vodafone. The Motley Fool UK owns shares of and has recommended Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.