It’s been a rough six months or so for some UK companies. It goes without saying that the mix of high inflation and subsequent squeeze on income has been a negative for businesses that offer goods or services. Growth stocks have suffered even more, given that their expected rises in revenue and profits have been revised lower. However, I think there are some good buying opportunities among the sea of red.
Time to turn the engines on
Elevated inflation and the rise in commodity prices (such as oil) have been negative for easyJet (LSE: EZJ). The budget airline has also struggled with a summer of airport disruption, with low staff levels leading to flight delays and cancellations. Over the past year, the share price is down 51%.
It’s been a bit of a disaster and I’m sure the management team is looking forward to putting 2022 behind it. But what of the outlook for 2023? I think it’ll be better than this year.
If we strip out the woes on pricing and disruption, the load factor and flying hours are increasing. For example, in the half-year report, the load factor was 77.3%. This was up from 63.7% in H1 2021. In a trading update last week, the Q4 load factor could be as high as 92%.
My take here is that fundamentally, easyJet is recovering. It’s being blighted by one-off issues, but none that I think will remain deep into next year. On that basis, it’s a stock I think I need to consider buying.
A growth stock that has halved in value
Another stock that has taking a battering this year is Currys (LSE: CURY). In the past year the share price has fallen by 50%.
The firm has been cautious on the outlook for the business throughout this year. It has flagged up concern around inflation and how this could dent sales. The financial year runs May to May, so I don’t have a perfect vision of how the past few months have been. Yet even during the financial year that ended May 2022, sales only dropped by 2%, despite inflation moving higher.
I actually believe the management team is being overly cautious about the future. Sure, people will be more careful on spending going forward. But we’re talking about Curry’s here, not a luxury fashion brand or high-end designer goods. In the world of TV’s, computers and even washing machines, if I need something I’ll buy it. How many people are going to go without buying a new TV if their old one breaks? Not many.
Importantly, it’s also taking steps to help customers, including the provision of credit for purchases and locking in the prices of certain goods. This could help to get repeat business and also attract new customers from competitors.
Buying in a diversified portfolio
In both cases, my main risk is that these stocks continue to head south. Given the size of the move lower already, it’s feasible for the shares to fall 10%-20% further in coming months. Even though I’m probably going to buy both soon, they won’t be the only stocks I own. Putting them in my diversified portfolio means that my risk is reduced, even if both companies take longer to recover than I anticipate.