For some companies, the Christmas trading period is the most important time of the year. For example, Card Factory (LSE: CARD) is heavily dependent upon the next few weeks and the gift season can make or break its full-year performance.
Of course, it’s very challenging to accurately predict exactly how any company will fare over the festive period. However, with the UK economy moving from strength to strength and this being the first year since the start of the credit crunch where wage growth has beaten inflation, it’s likely that consumer spending will be strong. As such, the purchase of shares in a company such as Card Factory that’s focused on Christmas cards and gifts could make sense. Or could it?
Looking further ahead, Card Factory is forecast to increase its bottom line by 14% in the current financial year and by a further 7% next year. Both of these figures are relatively appealing but, with Card Factory trading on a price to earnings (P/E) ratio of 19.8, it appears as though its growth potential is already priced in.
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In fact, when the company’s growth rate and rating are combined, it equates to a price to earnings growth (PEG) ratio of 2.5. This indicates that, while Card Factory could gain a boost from an improved Christmas trading period, prudent investors may be better off investing their hard-earned cash elsewhere.
Christmas boost?
It’s a similar story with online fashion retailer ASOS (LSE: ASC). It’s benefiting from an improved outlook for the UK economy, with a refreshed strategy seeming to make much more sense than its previous aim of offering deeply discounted prices across new markets. Although ASOS still has the potential to grow on a global scale, it’s focusing instead on developing its core markets, of which the UK is the most important. As such, and like Card Factory, it could gain a boost from increased spending this Christmas, as long as pressure to discount doesn’t get too intense.
However, to an even greater extent than with Card Factory, ASOS trades on an unappealing valuation. For example, its bottom line growth forecast of 23% for the current year may be impressive but, when combined with a P/E ratio of 64.4, equates to a PEG ratio of 2.8, which indicates that now doesn’t appear to be the right time to buy a slice of the business.
No tears at Boohoo
Meanwhile, Boohoo.Com (LSE: BOO) really is a potentially undervalued stock. It has a PEG ratio of just 0.9 and this indicates that the 27% rise in its share price over the last six months could be set to continue in 2016.
Furthermore, Boohoo.Com continues to invest heavily in marketing and has the potential to expand its current offering within the UK. That includes the scope to increase its product range for men, as well as plus sizes and additional accessories, where margins could be fatter. And, with BooHoo.Com being focused on its domestic market, it’s likely to be a major beneficiary of an improving UK economy. Alongside a significant amount of product differentiation via its own-brand products, this marks Boohoo.Com out as a buy for the long term.
