With the FTSE 100 enduring a challenging year, it’s perhaps unsurprising that a number of its members are in the red over the last 12 months. Standard Life Aberdeen(LSE: SLA), though, has seen its shares decline in value by 45% during that time, with investors seemingly unsure about its long-term investment potential.
Of course, it’s not the only stock to have experienced a disappointing year. Reporting on Monday was a company which has seen its share price fall by 52% over the same time period. Could it offer recovery potential alongside Standard Life Aberdeen?
The company in question is international software product group Micro Focus(LSE: MCRO). It announced a new CFO on Monday, as well as a trading update and the recommencement of its share buyback programme. Brian McArthur-Muscroft will assume the role in the first quarter of 2019, while the company’s share buyback programme could have a total value of up to $400m, including the $171m in shares which have already been purchased.
Trading in the second half of the year has been in line with the company’s expectations. Its revenue is forecast to decline by 6%-9% for the year to 31 October, with the EBITDA (earnings before interest, tax, depreciation and amortisation) margin due to be 37%.
Looking ahead, Micro Focus is forecast to return to positive growth in the 2019 financial year, with its bottom line expected to move 4% higher. With a price-to-earnings (P/E) ratio of around 8.5, it seems to offer a wide margin of safety following its share price fall. As such, and while potentially volatile, it could offer high returns in the long run.
The potential for a turnaround in the Standard Life Aberdeen share price may also be high. The company has become increasingly unpopular in recent months, with investors seemingly failing to become excited about prospects as an enlarged business following its merger. It has reported sustained outflows and is now seeking to rationalise its asset base as it seeks to become increasingly efficient.
However, such changes may take time to have their desired impact. In the meantime, investors seem to be unsure about the dividend prospects of the business. Shareholder payouts are currently covered 1.1 times by profit, which suggests that without rising earnings, there may be limited scope for a higher dividend over the medium term.
Despite this, Standard Life Aberdeen has a dividend yield of over 7% at the present time. This suggests that the stock could offer income investing appeal. While further share price falls could be ahead, due to weak investor confidence, a forecast rise in earnings of 8% in the next financial year suggests that its performance may improve over the medium term under its current strategy. As such, now could be the right time to buy it.
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Peter Stephens owns shares of Micro Focus and Standard Life Aberdeen. The Motley Fool UK has recommended Micro Focus and Standard Life Aberdeen. 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.