Even though the FTSE 100 has fallen in the last few months, some shares continue to trade on relatively high valuations. After all, investor sentiment remains generally upbeat and this is evident in the fact that the UK’s main index has risen by over 350 points in the last three weeks.
While buying shares that are not cheap may increase the risk of loss due to a narrow margin of safety, upside potential may still be on offer. As such, these two companies could be worth a closer look ahead of what could be improved periods from a business and investment perspective.
Improving outlook
Reporting on Thursday was drug discovery company C4X Discovery (LSE: C4XD). Its interim results showed that it’s made encouraging progress during the period, with investment in R&D across its portfolio of £3.4m. This was up from £3m in the same period of the prior year.
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There was also major news after the period end, with the company announcing a licensing deal with Indivior which could be worth up to $294m. The agreement links to C4X Discovery’s oral Orexin-1 receptor antagonist for the treatment of addiction. It will see the business receive $10m upfront, which should help to boost its financial position at a time when it remains loss-making and is utilising its cash resources.
Clearly, C4X Discovery is a relatively high-risk stock due in part to its size as well as the nature of its business. However, with significant growth potential in the treatment of addiction and in other clinical areas, it could be worth a closer look for less risk-averse investors.
Changing outlook
Also offering capital growth potential for the long run is online fashion retailer ASOS (LSE: ASC). The company released an update this week which showed its sales growth has continued to be relatively high. Even though investor sentiment was hurt by news of increased investment in its infrastructure, the company’s share price is still up by about 10% over the last year.
Furthermore, investment in its growth prospects seems to be a relevant strategy given that competition within the retail sector could increase. Consumers may become increasingly price conscious if economic growth rates come under pressure. And with ASOS forecast to post a rise in its bottom line of 26% this year, followed by growth of 24% next year, it seems to have found a successful strategy following a period of difficulty.
Certainly, the company’s price-to-earnings growth (PEG) ratio of 2.7 is relatively high. That’s especially the case compared to some retail sector peers which offer much wider margins of safety. But with the company being on track to deliver on its medium-term financial guidance, its shares could return to an upward trend following recent volatility. As such, now could prove to be a worthwhile buying opportunity for the long run.
