Last chance to buy IWG plc under £2?

Shares of serviced office specialist IWG(LSE: IWG) collapsed by over 30% from 320p to 217p on 19 October after it issued a major profit warning. A further trading update on 2 November failed to arrest the decline and this week the shares have dipped to a near-two-year low of under 200p.

Could this beaten-down FTSE 250 firm now be a bargain buy? Or is there a better bet in the shape of a high-flying company, whose board said in a trading update today: "We look forward to another exciting year of growth."

Brighter 2018?

IWG's profit warning arose because "anticipated sales improvement in the third quarter from the increase in sales activity was weaker than expected." As a result, the board revised its expectations for group operating profit for 2017 to a range of £160m to £170m, which compares with £186m delivered in 2016.

Nevertheless, the board said it remains "very positive" about the growth opportunities for the serviced office sector and the company's leading position in it. Indeed, it intends to continue to invest in growing its national networks and development capabilities, although, in the short term, this will lead to additional overhead costs and new centre losses due to the timing of openings.

Turning to IWG's valuation, the consensus earnings forecast of City analysts for 2017 is 12.9p a share. This represents a 14% fall on 2016's 15p and gives a price-to-earnings (P/E) ratio of 16. Not particularly cheap, but City analysts are expecting a brighter 2018. The consensus forecast is for a 22% rebound to 15.8p, bringing the P/E down to a more appealing 12.6 and making it a buyable recovery stock in my eyes.

Forecast beater

What of the high-flying stock I mentioned earlier? The company in question is Blue Prism(LSE: PRSM), whose shares have soared 1,515% to 1,260p since floating on AIM at 78p in March 2016.

The company provides software that, in its own words, "enables the automation of manual, rules-based, administrative processes to create a more agile, cost-effective and accurate back office." Today's update shows that strong demand for its software is continuing apace. The board said it "now expects revenue for the current financial year to be above the upper end of the current analyst range."

Ahead of today, the consensus was for £21.75m revenue, with £22m at the upper end of the range. This is a company where profit remains over the distant horizon and so, as when I last looked at it in June, I value it on a revenue multiple. My rule of thumb is that a multiple above 10 is overvalued.

Blue Prism's market cap is £790m at the current share price, so I'd be looking for revenue of £79m at the very least before considering investing. Unfortunately, even looking ahead to 2018 and allowing for an upgrade to the current upper forecast of £37.5m, the company has to remain on my list of stocks to be avoided on the basis of a too-rich valuation.

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G A Chester has no position in any of the 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.

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