Sports Direct (LSE: SPD) has been in the news of late due to its employment practices, with a number of commentators criticising the way it treats its staff. As such, the company has today released a statement that says that it will conduct a review of its agency worker terms and conditions. The release also states that the company places a high value on its staff and their wellbeing.
Clearly, 2015 has been a tough year for the company’s investors, with its shares falling by 18% since the turn of the year. While disappointing, Sports Direct’s financial performance continues to be very strong and in the current year it’s expected to report a rise in earnings of 11%, with a further increase of 15% being pencilled-in for next year.
After its recent share price fall, Sports Direct now trades on a price-to-earnings (P/E) ratio of just 13.5. When this is combined with its growth rate, it equates to a price-to-earnings growth (PEG) ratio of only 1. This indicates that its shares are set to post strong capital gains. So it could be a star buy for 2016.
Changing fortunes
Also having the potential to turn around a challenging 2015 is Morrisons (LSE: MRW). Clearly, external factors have hurt its financial performance in recent years and it has been rather slow at implementing strategy changes, with its move into convenience stores and online grocery shopping being relatively late. But now it has a simple strategy to focus on its core offering and this could provide a stimulus to its financial performance.
Looking ahead to next year, Morrisons is expected to increase its bottom line by 22%. After what is expected to be three years of falling net profit following the current year, positive growth could boost investor sentiment in the stock and allow it to begin to reverse the 18% decline in its share price since the turn of the year. With Morrisons having a PEG ratio of just 0.6 and trading conditions likely to improve as disposable incomes continue to rise in real terms, now appears to be a sound moment to buy a slice of the business.
Estate management
Meanwhile, shares in Poundland (LSE: PLND) have also struggled and they’ve fallen by 36% since the turn of the year. A possible reason for this is a rather disappointing earnings outlook for the company in the current financial year, with its bottom line forecast to fall by 20%. Furthermore, there may also be a degree of concern regarding the potential for challenges in successfully integrating the 99p stores that were recently acquired.
Yet 2016 could be an excellent year for Poundland. Its bottom line is due to rise by 50% and following its recent share price fall, this means that it trades on a PEG ratio of just 0.3. And with an ambitious plan to increase the size of its estate to 1,400 stores (up from a previous target of 1,070 stores), 2016 looks set to be a year of strong growth for Poundland, with its shares offering considerable capital gain potential.
