When the glory days have gone, it can be hard to get them back. The following three companies have taken a hit lately so can they come roaring back to form?
ARM needs a leg up
Microchip maker ARM Holdings (LSE: ARM) was a super whizz-bang stock for years, turning into a four or five-bagger, depending on when you bought it. See the mighty fallen: its share price is trading 15% lower than it was three years ago. It took another knock recently, on bad from news from key customer Apple, which reported a 16% drop in iPhone sales in the three months to March 26.
Yet little is wrong at ARM, whose first quarter results showed 15% growth in US royalty revenues (against a drop of 3% across the industry) and 39 new licences signed. It also boasts a robust licensing pipeline and strong demand for its next-generation products, and not just from Apple. ARM has ÂŁ1bn net to invest in further intellectual property rights, putting it in a commanding position against its rivals. ARM looks cheap by its own heady standards, trading at 38 times earnings (I remember when it topped 70 times). It remains a great British company but is hardly a raging buy at today’s price.
Bad Banco
This is a rough time for the banking sector and Banco Santander (LSE: BNC) has struggled accordingly, its share price almost halving over the past two years to today’s 314p. Emerging markets exposure was supposed to be a good thing for it, but that theory has floundered on HSBC and Standard Chartered’s troubles in Asia, and Santander’s misadventures in troubled Brazil, where it earns 18% of its profits. Although business levels have held up in Brazil, currency headwinds still hit revenues.
Santander continues to win new customers in its biggest markets, the UK (23% of business) and Spain (15%), helped by the popularity of its 123 account. A first quarter rise of 4% in customer lending and revenues is respectable, and although the yield disappoints at 2.27%, its valuation looks tempting at 8.53 times earnings. Earnings per share (EPS) are forecast to fall another 4% this year but rebound 10% in 2017, and Santander looks a good buy for the long term.
Off your marks
I’ve made snide comments about former high street hero Marks and Spencer Group’s (LSE: MKS) fashion sense in the past but I was in its flagship Marble Arch store last week and it had more dash than I remember. Sadly, there’s nothing cool about its share price, which is down 25% in the last year alone.
This has been a tough year for the retail sector generally, both food and groceries, with Marks having a foot in both camps. This split personality is reflected in sales, with its much-admired food halls thrashing the struggling grocery market, but general merchandise (clothes) a real drag on performance.
New boss Steve Rowe is the latest to try and succeed where others have failed, but I suspect there’s a structural problem that no individual appointment can resolve. Forecast EPS growth of 4% and 7% over the next two years may justify its 12.98 times earnings valuation. The yield of 4.16% is also tasty. I can’t imagine Marks & Spencer roaring back into life but it might give the odd polite cough.