4 beaten-up companies that are on my watch-list

Should you buy Vocus Group Ltd (ASX:VOC), Vita Group Limited (ASX:VTG), and Reject Shop Ltd (ASX:TRS)?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Not too long ago I was thinking that potential bargains were getting hard to find. The past two months have put paid to that idea, with a number of big companies falling dramatically. Here are 4 businesses that I'm watching right now:

Reject Shop Ltd (ASX: TRS)

Shares in this bargain-bin retailer have been smashed following the news that poor sales would see the company report a heavy loss in the second half of the year. If I knew for certain that this was a one-off hit and that profits would return to last year's levels ($17 million) then the company would be screaming cheap; priced at about 6x earnings or on an EV/EBITDA ratio of 3-ish.

However, I don't know that for certain and it is difficult to evaluate how long-lived the lower sales will be (the company will make a loss this half). As a result, I'm not a buyer of Reject Shop just yet.

TPG Telecom Ltd (ASX: TPM)

Along with Vocus Group (below) and Telstra Corporation Ltd (ASX: TLS), TPG shares have been sold off heavily in recent times. This is partly due to the recent discounted capital raising at $5.25 a share, but more broadly the market seems to believe that increasing competition in the sector will lead to lower margins for all the players. TPG and Vocus appear worthy of further investigation, and I'm in the process of looking at them more closely.

Vita Group Limited (ASX: VTG)

Vita Group is starting to look very cheap, with a large trailing dividend. Shares are likely cheap because of the uncertainty surrounding the recent change to the group's remuneration structure, which will result in it managing more Telstra stores but generating lower profit margins from them.

Unfortunately the company has more leaks than a barbed wire canoe, and I have zero confidence in my ability to buy shares without being taken advantage of by more-informed people close to the company. This one's on my wait-and-see list.

Vocus Group Ltd (ASX: VOC)

I'm looking closely at Vocus Group because I perceive it to be the cheapest telco, although I'm still in the process of evaluating whether it or TPG might have the stronger competitive position. There is considerable uncertainty in the sector, and the opportunity for growth in market share as customers switch to the NBN. With 6% market share at present, Vocus certainly has plenty of room to grow.

I believe that the company with the lowest costs, best customer service, and greatest ability to attract customers will likely be the winner – I'm just not sure who that is yet.

Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »