As with many aspects of life, investments will undergo periods of underperformance, after all, nothing goes up, or indeed down in a straight line.
However, in most cases there are logical reasons for a share price to decline. A challenging period of trading, a botched contract, a general slowdown in the economy, poor weather. The list goes on, and management often comes up with more excuses than I did during my school days in order to explain why I hadn’t completed my homework. These are the sorts of companies that I usually try to avoid.
Fundamentals or fear?
On the other side of the coin however, there are companies out there that are trading in line with expectations yet have seen the share price suffer along with general market sentiment. I suspect, at present, this has been brought about by the fear of the potential impact of a Brexit, how UK companies will continue to trade in Europe and the impact that a separation from the Eurozone would have on trading.
Three of the shares that I believe fall into this category are domestic broadcaster ITV (LSE: ITV), housebuilder Barratt Developments (LSE: BDEV), and budget airline easyJet (LSE: EZJ).
As can be seen from the chart covering the last six months all of the shares have managed to underperform a rather weak FTSE 100. But is this simply down to each business underperforming or are investors fearful of what the future may hold?
Let’s take a closer look…
When management announced ITV’s 2015 results, investors took fright as first quarter revenue was forecast to be flat, followed by an improvement in the second quarter. However, management also pointed to Online, Pay & Interactive again delivering double-digit revenue growth, while ITV Studios was also predicted to deliver double-digit revenue and profit growth, driven primarily by recent acquisitions.
There’s a similar story over at housebuilder Barratt when the interim results were announced in February. Sales performance across the group in the second half was strong when compared to the same period in 2015 according to the CEO David Thomas, resulting in total forward sales up by 13.4% on strong comparatives from the prior year.
Over at easyJet, management reported that earnings were in line with consensus market expectations despite the tragic events in both Egypt and Paris in November and December of last year.
CEO Carolyn McCall felt that the progress was down to easyJet’s excellent customer proposition, not to mention low oil prices, allowing the company to offer lower fares driving an 8% increase in passenger numbers in the first quarter.
One thing is for sure, all three companies update the market starting with easyJet on Tuesday and finishing with ITV on Thursday, and I for one will be interested in the progress made thus far in 2016.
Dividend delight
One benefit of the lower share price is the positive impacts on the dividend yield. Now, as we saw with a number of miners, the 10%-plus yields were seen as (and indeed proved to be) unsustainable. However with these companies, which now offer an average yield of over 5%, I believe the payout here is sustainable and the companies are certainly worthy of further research for dividend seekers.