Will HSBC Holdings plc, Whitbread plc And Shire PLC Turn Around Their Dismal Share Price Performance?
Owner of Costa Coffee and Premier Inn, Whitbread(LSE: WTB), has fallen from grace since the start of 2015. Having risen by 247% in the five years prior to 2015, its shares have slumped by 27% in the last year alone as investors have become increasingly concerned about its long-term growth potential.
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On this front, there's cause for concern. That's because the introduction of the living wage will impact heavily on Whitbread's business model, since a large proportion of its staff are paid by the hour. Whitbread has stated that it will seek to pass on the additional costs to consumers in the form of higher prices, but there can be no guarantee that sales will hold up. Certainly, it has an excellent business model with a high degree of customer loyalty, but the living wage is set to test just how resilient Whitbread really is.
With Whitbread trading on a price-to-earnings-growth (PEG) ratio of 1.3, it appears to have a sufficiently wide margin of safety to merit investment. Although its future may be uncertain, it has international expansion opportunities and remains a very solid long-term buy.
Costs, profits and yield
Also recording a share price fall year-to-date has been HSBC(LSE: HSBA), with the global bank's shares declining by around 12%. This has been at least partly due to concerns surrounding the long-term outlook for China, while HSBC's cost base and efficiency have also been called into question. That's because the bank's operating costs have reached record levels at a time when a number of its sector peers have been able to slash costs so as to improve profitability.
However, with HSBC in the midst of a restructuring which will see major job losses, its profit outlook is relatively positive. And with the Chinese economy offering excellent growth in demand for financial services in the long run, HSBC seems to be well-placed to deliver significantly better returns. That's not just with regard to capital gains, but also in terms of income returns since HSBC yields 7.3% from a dividend which is covered 1.3 times by profit.
From disappointment to turnaround?
Meanwhile, Shire(LSE: SHP) has also been a disappointment this year, with the pharmaceutical company's shares falling by over 10% in 2016. This could be due to a weakening in investor sentiment as a result of the uncertainty caused by Shire's combination with Baxalta. Although this has the potential to deliver improved sales and profit growth over the medium term, it also means greater risk since major mergers can sometimes fail to deliver the anticipated level of synergies or profitability.
However, with Shire trading on a PEG ratio of just 0.9, it seems to offer a wide margin of safety. Therefore, while its shares could be volatile, they look set to turn around the poor performance recorded thus far in 2016.
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Peter Stephens owns shares of HSBC Holdings. The Motley Fool UK has recommended HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
