Shares in fashion retailer Ted Baker (LSE: TED) are 6% higher today after it released an encouraging update. It stated that sales in the eight weeks to January 9 grew by 10% versus the same period last year. And with there being no significant promotional activity in the run-up to Christmas, gross margins are expected to be in line with expectations.
Furthermore, online sales grew by an impressive 39%, which indicates that they will continue to become a more important part of the company’s sales mix. Looking ahead, Ted Baker continues to expand and invest across international markets and while trading conditions remain challenging, it’s on target to meet full-year guidance.
With Ted Baker trading on a price-to-earnings (P/E) ratio of 28.6, many investors may feel that its shares are prohibitively expensive at the present time. However, with its bottom line due to grow by 20% in the current financial year and by a further 16% in the next financial year, Ted Baker’s price-to-earnings growth (PEG) ratio of 1.6 holds much greater appeal. That’s especially the case since the company has been able to record double-digit profit growth in each of the last five years.
While Ted Baker is likely to be hurt by continued short-term weakness in the Asian economy, its diverse geographical footprint means that it’s likely to provide a degree of resilience in 2016. And with Ted Baker transitioning towards becoming a true global lifestyle brand, now appears to be an exciting time for the business and one where the purchase of its shares is likely to yield strong returns.
Growth potential
Also reporting a positive update today is Tullow Oil (LSE: TLW), with the oil producer’s shares moving higher by over 10% as a result. That’s despite the update stating that revenue and gross profit for 2015 will be considerably lower than the previous year owing to a lower oil price and reduced production from its European assets.
However looking ahead, Tullow has huge growth potential. That’s because its TEN project in Ghana is now 80% complete and as today’s update highlights, it’s due to begin production in July or August of the current year. This will greatly aid Tullow’s medium-term goal of producing 100,000 barrels of oil per day (BOPD) by 2017. And with capital expenditure set to fall to $1.1bn from $1.7bn in 2015, Tullow’s cash flow looks set to rapidly rise in the coming years.
Clearly, a low oil price is bad news for the company, but Tullow appears to have a sound strategy and a clear path to earnings growth. In fact, its bottom line is forecast to rise by 851% this year, which puts its shares on a PEG ratio of just 0.2. This indicates that while volatility may be high in the coming months, now could be the right time to buy a slice of the company for the long term.