This week's three 52-week lows are an interesting bunch.
One is a retailer with above average margins and growth that saw its share price absolutely demolished after a mildly negative update yesterday. Another is a private hospital operator that has lost one-fifth of its value on little more than fear, while the third is a debt collector that lost 25% of its value after revised profit expectations and a company restructure – yet it could be the best value of the three.
Let's take a closer look:
Lovisa Holdings Ltd (ASX: LOV) – last traded at $2.37, down 1% for the year
Shares in Lovisa took a dive yesterday after a trading update revealed declining gross margins at the retailer, which nevertheless posted a significant lift in revenue and profits. This was partly thanks to new store openings, although Like-For-Like (LFL, or 'same store' sales) also rose a staunch 4.2%.
Given that the Australian dollar has weakened some 10% further against the USD (thus increasing the cost of Lovisa's items), investors might reasonably expect margins to come under pressure again in the second half, if price rises cannot claw back the difference.
With strong same-store sales and ongoing international expansion however, this retailer is worth a closer look now that shares have taken a beating.
Healthscope Ltd (ASX: HSO) – last traded at $2.20, down 19% for the year
Shares in private hospital operator Healthscope plunged recently following the Dick Smith Holdings Ltd (ASX: DSH) debacle – Healthscope is also a recent private equity offering. A quick look at the share price chart suggests investors were spooked when 'CT Healthscope Holdings L.P' (the previous legal parent entity of Healthscope) sold its remaining 17% shareholding in November. Although normal practice for private equity launches, it apparently reminded some of Anchorage Capital selling out of Dick Smith.
That may be unfair, as Healthscope carries around $220m in cash and $1.2bn in non-current debt as of 30 June 2015. The business generated $300m in positive cash from operations, all of which was spent on development in order to drive Healthscope's aggressive expansion.
Unlike Dick Smith however, Healthscope operates in a more attractive market supported by better demand characteristics thanks to health insurance and government funding. Healthscope is worth a closer look, but in honesty it looks too expensive to me right now and I would tend towards picking up the thoroughly battered Primary Health Care Limited (ASX: PRY) instead.
Collection House Limited (ASX: CLH) – last traded at $1.58, down 25% for the year
Shares in collection services business Collection House took two hefty hits this year; first, as management announced slower growth due to increased competition, and again after the company began restructuring in order to flatten the management structure and reduce costs. As a result, first half profits are expected to come in at $8.3m compared to $11.2m previously – a 25% decline (full year guidance of $23.5m profit remains unchanged, however).
Given the lag time on collection activities, shareholders might expect a period of mediocre earnings to continue beyond the current financial year. However, at a Price to Earnings (P/E) ratio of 9, Collection House shares also don't have to do a whole lot to justify today's valuation, and I am considering buying more at today's prices.
