Should you avoid Restaurant Group plc, Next plc, Marks and Spencer Group plc and Thomas Cook Group plc at all costs?
Retail has been one of the market's worst performing sectors so far this year. A fragile consumer spending recovery coupled with disruptive technological upstarts are two factors that have combined to give traditional retailers a serious headache and a wave of profit warnings has hammered the sector.
Multiple profit warnings
Restaurant group(LSE: RTN) has issued several profit warnings over the past 12 months, and this once-highly-rated growth stock has crashed back down to earth this year. Year-to-date the company's shares have collapsed by 48% after two serious profit warnings and the market is no longer willing to award the company a premium growth multiple.
At the end of 2015 Restaurant group traded at a P/E of 20.1 and offered a dividend yield of only 2.6%. Now, the group's shares trade at a forward P/E of 10.5 and support a dividend yield of 4.9%.
However, over the past 20 days shares in the group have risen by around a third on bid rumours. Buying in the hopes that an offer will emerge for the company is often a risky strategy as, if no offers emerge, the company's shares usually crash back to earth.
Shares in Next(LSE: NXT) have also had a tough time this year as investors have turned their back on the company following an announcement that trading for the year will be below expectations. Year-to-date, Next's shares have fallen by around a quarter, but this could be an interesting opportunity for value investors.
Next has a history of returning all excess capital to investors via both buybacks and dividends, and this trend looks set to continue. Based on current estimates, Next's shares trade at a forward P/E of 12.3 and support a dividend yield of 3.6%.
Yesterday, more than 10% of Marks and Spencer's(LSE: MKS) market capitalisation was wiped out in a single day after the company warned that a restructuring programme would weigh on profitability for the next few years. This warning should have come as no surprise to investors as Marks' recovery has been struggling to gain traction for some time.
Nonetheless, despite lowered expectations for growth, shares in Marks are still trading at a relatively attractive forward P/E of 12.5 and support a dividend yield of 5.5%. The payout is covered twice by earnings per share.
On track to hit targets
Thomas Cook(LSE: TCG) hit a near three-year low this week as traders were betting against the company following further terrorist attacks in Egypt. The company has also been hit by a proposed strike by Thomas Cook Airlines staff who are striking over health and safety concerns and "dangerous" changes to rest breaks.
Still, this month management stated that despite headwinds, the company is on track to hit its growth targets through to 2018. It remains to be seen whether or not Thomas Cook will hit these forecasts but at present, City analysts expect the group to report earnings per share of 12.4p for the year ending 30 September 2017. That puts the group on a 2017 forward P/E of only 5.7.
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Rupert Hargreaves 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.