Developer of digital inkjet technology Xaar (LSE: XAR) has today released an encouraging trading update that has sent its shares higher by around 6%.
The company expects revenue for the full year to be in line with previous guidance, with sales having performed to expectations since the company’s last update. That’s despite the anticipated softening in demand for ceramic tile printing in China, with revenue growth in packaging helping to offset it.
However, as a result of improved operating efficiency at Xaar’s manufacturing sites in Sweden and in Huntingdon, it now expects to deliver an adjusted operating margin of 20% in 2015. And with it having a net cash balance of £70m at the year-end, Xaar continues to enjoy a relatively sound financial outlook.
With Xaar forecast to post a fall in earnings of 4% in the current year, its shares may struggle to maintain the momentum that has seen them rise by 30% in the last year. That’s especially the case since the company trades on a price-to-earnings (P/E) ratio of 25.6, thereby making Xaar seem like a stock to avoid in favour of other, better value options.
Watch and wait?
Meanwhile, companies such as Madagascar Oil (LSE: MOIL) continue to struggle with a declining oil price. Although Chinese trade surplus data released today was better than expected and has boosted the price of oil, it seems likely that the price of black gold will come under increasing pressure as the US dollar appreciates in tandem with interest rate rises. As such, the outlook for stocks such as Madagascar Oil could be rather challenging, with financing in particular likely to be more difficult to come by as investors and lenders back more established, profitable businesses.
Despite this, Madagascar Oil reported in its half-year results that it has secured a bridge financing facility of up to $21.9m from its four major shareholders. This is designed to fund the company through to the conclusion of the partner process. And with Madagascar Oil reporting a loss of $6.6m for the first half of the year and a cash balance of $1.8m, such financing appears to be rather timely.
While the company has the potential to offer long-term growth and the approval in the current financial year from the Malagasy government for Block 3104 Tsimiroro Development Plan is positive news, other oil and gas plays could prove to be better risk/reward opportunities at the present time. As such, it may be prudent to watch, rather than buy, Madagascar Oil right now.
Risky but worth it?
In addition to a low oil price, Genel Energy (LSE: GENL) is also facing the major political risk that comes with operating in Northern Iraq/Kurdistan. This has undoubtedly hurt the company’s share price performance, with its valuation falling by 79% in the last year.
Despite such problems, Genel Energy has a superb asset base that has the potential to deliver improving profitability over the long run. And in the current year, it’s expected to post a rise in earnings of 47% which, alongside a P/E ratio of 13.7, equates to a price-to-earnings growth (PEG) ratio of just 0.3.
This indicates that while Genel Energy’s share price may remain volatile, the risks to the company from operational disruption and a lower oil price appear to be priced-in. For less risk-averse investors, Genel Energy could be a sound long-term buy.