Why Interserve plc is a turnaround stock with millionaire-maker potential

The Motley Fool
Investing in the FTSE 100
Investing in the FTSE 100

This year has been nothing short of a catastrophe for shareholders in Interserve(LSE: IRV). The support services and construction company has recorded a decline in its share price of 76% since the start of the year. Even more worrying for its investors is the fact that it has shown little sign of a recovery.

Looking ahead, though, the company could have turnaround potential. In fact, it's not the only stock which could perform well in the medium term after a difficult 2017. One company which released a trading update on Tuesday could also be worth buying for the long term.

Strong trading

The company in question is business-to-business event organiser UBM(LSE: UBM). The company's performance since the half year has been impressive, and it's on track to deliver significantly accelerated adjusted underlying revenue growth in annual events for the full year. This provides evidence that its strategy is working well, and also that its trading conditions remain encouraging.

For example, UBM's major events during the quarter performed well. While there was weakness in the Fashion sector, this was offset by a strong performance within the Pharma sector and in other areas. Furthermore, the integration of Allworld is progressing well, with performance ahead of forecasts.

Since the half year, two bolt-on acquisitions have been made in the renewable energy and medical aesthetics sectors. Further deals are expected to close before the end of the year, with small asset disposals also in the pipeline. Such changes could improve the strength of the company's business model and lead to higher earnings growth potential in the long run.

Positive outlook

In the current year, UBM is expected to report a rise in its bottom line of 25%. After its shares have fallen by 2% since the start of 2017, this means it has a price-to-earnings growth (PEG) ratio of just 0.6 at the present time. This suggests that it could offer a wide margin of safety and may be worth buying for the long term.

Similarly, Interserve also appears to be cheap. It has a PEG ratio of 0.1 and is forecast to report a rise in earnings of 16% next year. Certainly, there is scope for downgrades to its outlook, since its future is highly uncertain. Difficult trading conditions could mean the company's operational and financial performance continues to disappoint into 2018. However, with such a wide margin of safety, the company appears to be worth buying for the long term.

Of course, both UBM and Interserve could deliver further share price falls in the near term. Their stock prices may be volatile and are perhaps not suitable for the most risk averse of investors. But with such low valuations and upbeat earnings growth outlooks, they may offer stunningly high returns in the long run.

Millionaire potential

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended UBM. 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.