Are 600 Group PLC, Rockhopper Exploration Plc And Electrocomponents plc In Terminal Decline?
Shares in industrial products designer and manufacturer 600 Group(LSE: SIXH) have slumped by 25% today after it released a profit warning.
As the company reported in its recent interim results in December, trading conditions have been difficult and customer confidence to commit to purchases has been a concern. Since then, the same challenges have persisted and the weakness that the company was facing in Europe is now also being felt in the US, with the machine tools division being worst hit.
With general economic and manufacturing forecasts being weaker than previously anticipated, purchasing decisions are being delayed. This means that future revenue visibility is poor and equates to a more uncertain future for companies operating within the sector, such as 600 Group. The company is reducing overheads, and implementing improved sales and marketing efficiencies, but such measures are unlikely to fully offset the decline in volumes.
Clearly, today's update from 600 Group is disappointing, but with the company's shares now trading on a price-to-earnings (P/E) ratio of 4.8 (using last year's earnings figure), it could be worth a closer look for less risk-averse investors.
Ups and downs
Also falling today are shares in Rockhopper Exploration(LSE: RKH). They're down by around 1% and this takes their fall to 48% in the last six months, with the falling price of oil clearly having a hugely negative impact on their performance.
Furthermore, investor sentiment has also been hurt by the decision not to award Rockhopper a production concession for the Ombrina Mare field in Italy, despite the company having completed all of the required technical and environmental authorisations.
However, with Rockhopper having a strong balance sheet that includes a relatively appealing net cash position, as well as an asset base with the potential to deliver high levels of profitability in the long run, it could be of interest to investors willing to take a risk. Certainly, it's likely to remain volatile in the short run, but doesn't appear to be in terminal decline.
Likewise, Electrocomponents(LSE: ECM) continues to record disappointing share price performance. Although its shares are up by 7% today, they're still down by 17% in the last five years and with the company's financial outlook being rather uncertain of late (due in part to weak performance in the US), investor sentiment has understandably been under pressure.
Looking ahead, Electrocomponents could prove to be a stunning buy. Not only is it expected to deliver double-digit earnings growth next year, but it trades on a price-to-earnings (P/E) ratio of 18.4. This indicates considerable upside potential, with a yield of 5.2% adding to the company's long-term total return prospects. And with scope for additional efficiencies over the medium term, Electrocomponents could see its margins improving, which has the potential to push its profitability and share price considerably higher.
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.