With stock markets being volatile at the moment, I’m considering where the share prices of easyJet plc (LON:EZJ) (EZJ.L), Interserve plc (LON:IRV) (IRV.L), Imperial Brands PLC (LON:IMB) (IMB.L) and Royal Mail PLC (LON:RMG) (RMG.L) could move to next. Are they worth adding to my portfolio?
easyJet has been a strong turnaround stock in my view. It has been able to adjust its strategy so that it is now in a position to deliver improving passenger numbers in what is still a difficult short-haul airline industry.
The company’s PEG ratio of 0.8 suggests that investors are cautious about its future, which is understandable given its difficult recent past. With the acquisition of Air Berlin, I believe that easyJet has a bright future.
Royal Mail may often be seen as a quasi-utility company. It has a relatively high yield of over 4% and has historically offered relatively slow EPS growth.
However, in my view this may be an unfair viewpoint on the stock. It has significant international growth potential to my mind which could boost its EPS performance over the medium term. Therefore, I remain bullish on Royal Mail’s outlook.
Imperial Brands has a strong growth outlook according to my research. The company has been able to position itself for growth within the lucrative reduced risk product space. This has the potential to catalyse its EPS growth over the medium term and may lead to a stronger performance from the company than the stock market is expecting.
Since Imperial Brands has a dividend yield of around 7% at the moment, I feel that it is substantially undervalued by the stock market.
Interserve’s P/E ratio of around 4 may suggest that the stock offers a large margin of safety. However, its EPS is forecast to fall at a double-digit pace in the current year. This could cause investor sentiment to decline and may lead to a lower share price.
Clearly, Interserve’s share price could deliver a strong recovery. It is expected to post a return to positive EPS growth next year. But, for me, the risks continue to outweigh the rewards in what is a tough market.