This FTSE 100 stock has spectacular turnaround potential

Updated: 
Dixons Carphone

Like many British retailers Dixons Carphone(LSE: DC) hasn't been immune to the Brexit effect in terms of share price weakness in recent months. Europe's leading specialist electrical and telecoms retailer suffered a severe share price collapse following last year's EU referendum, leaving the shares at two-year lows and trading below £3 per share for the first time since 2014.

Brexit effect

But unlike some of the other Brexit casualties within the FTSE 100, Dixons Carphone is still waiting for its share price to recover. Could this be an opportunity to grab a slice of the electricals giant at a knock-down price, or is there more share price misery to come?

In its most recent trading update the company reported a fifth consecutive year of Christmas growth. The group, which includes the Currys, PC World and Carphone Warehouse brands, was able to offer very competitive prices during Black Friday week and the Boxing Day sales due to benefits of scale in all its markets. What I like best is that it managed to do all of this while maintaining margins - bravo.

Discounted price

On a like-for-like basis, group revenue was up 4% for the 10 weeks to 7 January, with 6% growth in the UK & Ireland and a 5% improvement in Southern Europe. The only slight disappointment being the Nordic region which saw revenues slip 1% on a like-for-like basis. As a result, the group is anticipating an uplift in profitability this year compared to the last, and now expects headline pre-tax profits in the range £475m to £495m for the full year to the end of April.

With the share price barely managing to stay above 300p in recent months, Dixons Carphone is trading well below its New Year's Eve 2015 peak of 500p. And in my view the depressed share price offers contrarian investors a chance to buy at a discounted price, trading at just 10 times forward earnings for fiscal 2017.

Enticing valuation

Another British retailer whose shares have slumped over the past couple of years is Topps Tiles(LSE: TPT). The UK's largest tile specialist has seen a slowdown in growth in recent times and the share price has suffered as a result. The Leicester-based group last month reported a slowdown in like-for-like sales for the first quarter of its financial year, with revenues up just 0.3% compared to 1.3% in the previous quarter.

But the small-cap tile specialist is making good progress with is strategy of out-specialising the specialists, with early results from its expanded trade rewards loyalty programme now boasting 24,000 participating traders, and around two-thirds of trade sales now linked to the scheme. After a 40% share price slump over the past year, Topps is trading on a very enticing valuation with the P/E ratio below 10 for the current financial year, and falling to just nine by September 2018.

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Bilaal Mohamed 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.