One bargain-basement stock I'd buy and one I'd avoid
Investor appetite for Interserve (LSE: IRV) has remained broadly flat in Friday business despite the issuance of a broadly-reassuring trading update.
Interserve advised that revenues at its Support Services core division (responsible for about two-thirds of total sales) were "robust and in line with our expectations" during the first four months of the year.
As well, Interserve announced that, at its Equipment Services arm, it was witnessing "good momentum across its international markets," particularly in the UK, Middle East and Far East.
Still too risky
While Interserve therefore affirmed its expectations for the full year, there are still some big questions surrounding the Reading firm.
At its Construction division (from where 40% of sales are sourced), Interserve advised that trading remains in line with forecasts. But the business noted that its performance in the UK "remains mixed."
And although it expects performance to pick up the second half of the year as older, less favourable contracts expire, it warned that "workflow may be impacted by the General Election."
But the main cause of investor concern is the impact of its decision to exit its Energy from Waste (or EfW) division back in November. Its share price collapsed in February after it warned of "a lengthy period of litigation" following its decision to axe its Glasgow Recycling & Renewable Energy project, and after hiking provisions related to the exiting the market and the related contracts to £160m.
So while Interserve advised today that "progress on contracts within our exited [EfW] business is in line with expectations," the saga still threatens to throw up plenty more headaches looking ahead.
Some would argue that these troubles, as well as the prospect of trading conditions toughening in the months ahead, are more than baked in at current price levels (a predicted 7% earnings fall leaves Interserve dealing on a P/E ratio of just 4.2 times).
I am not convinced however, and reckon the support services and construction specialist could find itself subject to yet more broker downgrades as 2017 progresses.
TheVitec Group(LSE: VTC), on the other hand, should continue to impress in the near term and beyond.
Vitec announced this week that it had been "performing slightly ahead of our expectations," with further organic sales and positive currency movements helping to maintain the solid momentum enjoyed last year.
As a result it advised that it was increasing its outlook for 2017. The news sent its share price to a fresh record top around 930p per share. But despite the camera giant's steady rise, I reckon the stock still offers supreme value for money.
For 2017 a predicted 6% earnings advance leaves Vitec dealing on a P/E ratio of just 14.3 times, below the widely-regarded value benchmark of 15 times. And a dividend yield of 3.1% provides a handsome little bonus.
While investment by the broadcasting sector may have fallen more recently, Vitec is traversing these troubles by staying ahead of its competitors through massive R&D and a stream of product launches. And I am convinced these measures should keep revenues shooting higher.
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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.