Investors have been steadily buying back into WM Morrison Supermarkets (LSE: MRW) over the past couple of years, signalling a belief that the grocery giant is slowly turning the corner. But I'm not one of these glass-half-full investors, I'm afraid.
The recovery plan initiated under chief executive David Potts -- who will mark three years at the helm in the spring -- has certainly been impressive. By improving the chain's product ranges, its customer service experience, and belatedly entering the online space, Potts has finally turned around the fallen giant's flagging fortunes.
Indeed, after enduring four years of successive earnings falls, these measures finally got Morrisons firing again with a 40% earnings rise in the year to January 2017.
And with sales rising (up 2.2% in the 12 weeks to January 28, according to latest Kantar Worldpanel data), and Morrisons still doubling-down on cost-cutting measures (it announced the axing of 1,500 management roles earlier this month), City analysts expect profits to continue improving.
A predicted 11% rise for fiscal 2018 is expected to be followed with rises of 9% in each of the following two fiscal periods.
Competition on the march
However, I'm concerned that these forecasts could be derailed by the steady expansion of Aldi and Lidl. Kantar advised that takings at these discount chains subsequently exploded 16.2% and 16.3%, respectively, in the latest three month period, growth that nudged Morrisons' market share down 20 basis points to 10.7%.
And the steady fall in real wage growth is likely to attract more and more shoppers to the value chains, heaping more pressure on Morrisons' already-pressured margins as it attempts to compete on price.
A forward P/E ratio of 17.3 times fails to reflect the FTSE 100 firm's still-murky long-term earnings outlook, in my opinion. So despite the efforts of Mr Potts, I for one will not be investing any time soon.
A better Footsie selection
I'd be much happier splashing the cash on Informa (LSE: INF), my confidence having been bolstered by Wednesday's blockbuster full-year results.
The events organiser and publishing colossus advised that revenues jumped 30.7% during 2017, to £1.76bn, a result that propelled adjusted pre-tax profit 29.4% higher to £486.4m.
Last year's performance paid testament to the success of Informa's four-year 'Growth Acceleration Plan'. The programme helped all four of its divisions report growth last year, including its Knowledge & Networking division which flipped back into underlying sales growth.
At group level, Informa reported underlying revenues growth of 3.4% in 2017. And it has plans to improve this to 3.5% in 2018 as it doubles-down on product and platform investment and takes steps to bolster its international presence.
City brokers are expecting Informa's long-running growth record to keep rolling with rises of 3% in 2018 and 5% next year. And in my opinion, the takeover of FTSE 250 business-to-business events specialist UBM will boost the company's geographic and market footprint still further and should, in turn, provide the basis for earnings growth to step up a gear looking further down the line.
I reckon the Footsie play's forward P/E ratio of 14.5 times is a bargain given its exceptional growth credentials.
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Royston Wild has no position in any of the 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.