Today I’m considering the rebound potential of three Footsie-listed fallers.
Sales slipping
A series of worrying updates has sent Next’s (LSE: NXT) share price heading through the floor in recent months.
The retail giant has shed 32% of its value since the beginning of the year, with investors first stampeding towards the exits after March’s warning that “the year ahead may well be the toughest we have faced since 2008” due to slowing ‘real’ wage growth.
And Next followed this with a profit warning the following month, with rising competition for its Next Directory online and catalogue division providing further pressure.
And I wouldn’t expect Next’s share price to tick higher in the months ahead as the fallout from last month’s Brexit vote continues. Indeed, the retailer fell to its cheapest since April 2013 as the market digested the implications of a potential recession for consumer spending power.
I see no reason to buy Next at the present time, even in spite of a ‘conventionally’ low forward P/E ratio of 11.3 times.
Send it back
To say that 2016 has been a disaster for Restaurant Group (LSE: RTN) would be something of a colossal understatement.
Like Next, the firm has issued profit warnings as footfall in eateries like Frankie & Benny’s and Chiquito has eroded. Consequently Restaurant Group has seen its share price slip 58% since the start of 2016.
And I see no reason for the share price to stage a resounding recovery. An environment of declining consumer confidence in post-Brexit Britain is likely to weigh on its customers’ appetites.
And Restaurant Group faces other long-term structural obstacles. The firm’s focus on retail sites leave it vulnerable to a drop-off in shopping activity as lighter wallets and rising e-commerce weigh. And the caterer faces rising competition from takeaway giants like Just Eat and Domino’s Pizza.
I believe Restaurant Group could be well past its sell-by date, and I for one won’t be tempted to buy regardless of an ultra-low P/E rating of 9.7 times for 2016.
Banking bothers
I’ve previously been bullish concerning the earnings prospects of Barclays (LSE: BARC), the bank’s vast exposure to the robust US and UK economies providing investors with plenty of reasons to be cheerful.
But Britons’ decision last month to hit the EU ‘eject’ button has caused me to revisit my positive take, and I believe Barclays may add to the 37% share price decline punched during January-June.
The consequences of the referendum are yet to be calculated, but the ramifications for the global economy — and consequently for the interconnected banking sector — are likely to be huge.
And when you throw in the prospect of rising PPI bills ahead of a possible 2018 deadline, I believe Barclays and its peers are in significant danger of prolonged bottom-line woes.
I therefore reckon Barclays is an unattractive stock pick at present, particularly as a prospective P/E rating of 12.9 times nudges ahead of the benchmark of 10 times indicative of high-risk companies.