Shares in the group have risen by 32% over the past 12 months helped in part by news that sales have been rising across the board. Seven months ago Terry Duddy announced plans to stand down as chief executive, and he was replaced in March by John Walden.
Two years ago Home Retail Group reported a 60% fall in profits to £102 million as a result of brutal high street conditions. It slashed its dividend payout as a result. This year profits are expected to come in at the top end of the current range of market forecasts of £107 million to £111 million. Some analysts think they could top £115 million.
City brokers have been upgrading their earnings-per-share expectations on the stock since last summer. Consensus forecast data at Stockopedia currently anticipates that EPS will come in at 9.9p.
Among the analysts, four currently have buy or strong buy recommendations on the stock, while five rate it as underperform. Seven are neutral.
What to watch
Home Retail is currently halfway through plans to transform both Argos and Homebase in response to changing consumer trends and the use of digital technology. It has already confirmed that both chains saw like-for-like sales growth through the year, so expect to hear more from John Walden on how he plans to continue that.
What's the investment case for Home Retail?
Home Retail's 32% price gain has easily beaten the 12% rise seen on the FTSE 250 over the past year. It has also eclipsed the so far disappointing performances of newly-listed online retailers like AO World and Boohoo.com.
But despite its rising price, the group remains among the top 10% cheapest shares in the market based on Stockopedia's ValueRank. The rank scores every company in the market using a blend of six common valuation metrics. This week's results should offer greater clarity on whether that valuation is warranted or whether investors have been too bearish in their expectations about the company.
Stockopedia's ValueRank is part of a family of stock analysis tools that also track every company's financial quality and momentum. Put together, StockRanks are a powerful way of identifying shares with higher odds of outperforming.
On a final note, the amount of Home Retail stock controlled by short sellers has fallen dramatically since last summer. Having previously been one of the most heavily shorted shares in the market, short interest has fallen from 12.1% to 4.6% in that time. That indicates that fewer hedge funds believe the stock to be over-priced. A positive results update from the company could put more pressure on those that remain unconvinced.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.