Too many investors jump into a company purely because they believe the price is cheap. Rather than understanding why the price has declined, they invest in the hope that the company will see better days.
Warren Buffett is famous for saying that turnarounds seldom turn and it is with these words firmly in mind that I approach investing in "bargains".
The key for me when assessing a bargain is to look at the core business of the company. If it is still solid and the problems appear only temporary in nature rather than fatal, then and only then, will I consider buying.
I believe the foundations of the following three companies remain solid and the price does not accurately reflect their future.
Ardent Leisure Group (ASX:AAD)
Ardent Leisure Group is an operator of leisure and entertainment venues in Australia, New Zealand and the United States. Over the last 12 months the share price has declined by over 10% which in my opinion is surprising, considering the success of the US-based Main Event entertainment centres and the fact Ardent has flagged the sale of the poorly performing marina division.
Source: Company presentation.
Sitting on a PE of 15 and with expected strong double-digit revenue growth for FY2016 led by the expansion of Main Event theme parks in the US, I believe Ardent is poised for a re-rating by the market over the next 12 months
Cover-More Group Ltd (ASX: CVO)
Cover-More Group operates in the travel insurance and medical assistance markets primarily in Australia, with a presence in India, Asia, the United Kingdom and recently the USA. Over the last 12 months Cover-More's share price has been belted down by over 40%. The decline in share price has been linked to slowing of revenue growth and margins in the Australian and UK market.
The good news for shareholders came in the Q3 update which highlighted the growth prospects of the newly-entered US market, which is expected to add approximately A$30 million of gross sales in the first 12 months. Further good news for Cover-More has been the continuation of strong traffic numbers through Sydney Airport along with strong reports from US airlines in their recent investor updates.
FlexiGroup Limited (ASX: FXL)
FlexiGroup provides leasing, vendor finance programs, interest free cards, mobile broadband, lay-by and other payment solutions to consumers and businesses. FlexiGroup operates in Australia, New Zealand and Ireland. Over the last 12 months FlexiGroup's share price has crashed over 30%. The reasons for the decline appear to have been the government inquiry into small loan practices and Flexigroup's slowing growth.
Source Company Presentation (Showing impact of Fisher & Paykel Finance acquisition)
To combat this, the company has entered into what I believe is a thesis-changing acquisition of Fisher & Paykel Finance along with the new CEO culling less profitable areas to concentrate on its core markets. Sitting on a PE of 8 and a dividend yield of 7.8%, I am happy to collect the dividends while the turnaround takes its course.
