Five Further Tremendous Turnarounds

Thu 10:55am by Mark Simpson

5 comments 1421 reads

Last week, I looked at some of the most interesting stocks from my Turnaround Screen. This week, I continue in the same vein with a first look at five more investment ideas for the turnaround investor.

Halfords (LON:HFD)

Many think of Halfords as a cycling retailer. However, their recent trading statement shows that they are increasingly a motor vehicle service centre operator:

The Group has two reporting segments: Autocentres (c.40% of Group revenue) and Retail (c.60%, across Motoring and Cycling). Motoring across both segments represents c.80% of total sales.

This is one of the highest VM-ranked stocks in the UK:

The Momentum Rank is driven by positive price moves across most timeframes:

There has been a strong recovery from April lows:

This is helped by an upbeat trading statement where they said:

Outperformed £30m cost saving target, mitigating more than £30m of inflation in the year.

Underlying Group profit before tax around the upper end of the £32m to £37m range previously guided.

However, the upgrades for future years have been very modest, and FY26 is now expected to be flat on FY25:

This makes it look expensive on forecast earnings. However, many of the other metrics are rated green, hence the high Value Rank:

The EPS trend over the years isn't particularly promising:

Of course, 2020 and 2021 represented a cycling boom. However, in 2019 they did much higher EPS and they were forecast to get close to these levels in 2026 before downgrades last year. Like many retailers, the main issue seems to be around higher costs. They have plans to mitigate these, as they said in their recent trading statement:

We have previously communicated that the changes to the Minimum Wage and National Insurance thresholds and rates introduced by the Autumn Budget will result in c.£23m of incremental direct labour cost in FY26. We also expect increased costs to be passed through in contracts for managed services.

We have undertaken a comprehensive review of the business to identify potential mitigations for the additional…

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snowdrop

Thu 3:33pm

In the end Mark you write more caveats than positives in your personal style. I assume you own none of these, nor are considering doing so. May be , like graham your should reveal your own holdings? There is as much Mark as Analysis in this/

Teast17

Thu 7:32pm

Take your point but I quite like the balanced commentary, there really isn't enough of it around these days

Mark Simpson

Thu 7:37pm

Stockopedia writers always declare when we own stocks we write about, so no declaration = no owership.

I like writing these types of articles becasue they help form my views on possible stocks for my watchlist. Although interstingly, I have owned all of these stocks in the past IIRC, and would consider owning them again so are already on my watchlist. Hence I know all of them reasonably well and feel a duty to readers to point out the most saleint points, bull and bear.

The bull case for a turnaround stock is often self-evident - the Momentum Rank is strong and it isn't expensive. The bear points are often more nuanced, and investors may miss them. There will be plenty of investors for whom the positives outweigh the negatives on these types of stocks. However, I am not a natural turnaround investor. I would probably own all of the above if they were cheaper but had weaker Momentum Ranks, or at least the Momentum was more broad-based and less focused on 1-month RSI where mean-reversion tends to be king, or the fundamental Momentum seemed stronger. But hey, we all have to find our own way in investing and there are plenty for whom going with the flow of strong Momentum is a better psychological fit.

Fri 8:45am

Thank you Mark, an excellent informative response to a bit of a snotty comment!

rmillaree

Fri 10:25am

I think its tricky one finding ones niche - i have generally a gone of fundamentals for my entire investing career - but must admit aided by the very useful trade/chart ideas thread. I now have a selection of stocks where others think "the chart look good" and there is some reasonable value and hope for upside - these are stocks i probably wouldnt touch on financials lack of managment trust alone - for example i have just picked up some vistry despite not trusting mangement one iota and have had a punt on Synthomer despite the woeful trend in future earnings expectations. Visrty is possible more safe as its got a nice discount to TNAV. with Synthomer the thinking is that the downgrades are over they have kitchen sinked the worst and they are trending back to higher profits. as i am going against my normal principles here i will get shot of these companies unless the news is good if the share price chart doesnt stay decent - i will see how flipping from often going agaisnt the tide to riding the wave (of a decent chart) gets on - i dont have high confidence as to me a chart is only good tillm its nlt good and the change can be next day before you have had a chance to sell - one cant doubt though that soem comapnies stay if the goove of ascending price for a decent length of time.

Five Further Tremendous Turnarounds

Halfords (LON:HFD)

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Mark Simpson

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