One value stock I’d buy today and one I’d avoid

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The ongoing struggles over at Travis Perkins (LSE: TPK) were again laid bare in Wednesday trading as the firm offered up its half-year financial report.

The builders’ merchant advised that while revenues rose 3.5% during January-June, to £3.22bn, this could not stop adjusted pre-tax profit slumping 4.9% to £175m. Like-for-like sales growth at the business slowed to 2.7% in the first half from 3.1% in the corresponding six months of 2016.

In particular, it again highlighted the struggles over at its Plumbing & Heating division, where operating profit tanked 31.6% in the period, to £13m. Revenues fell 1.5%, or 1.2% on a like-for-like basis.

The company said that performance here “reflected the continued difficult market conditions in the large contract installer market, impacting [Plumbing Trade Supplies], where growth in the new build market was not enough to offset continued declines in social housing and reduced trade with one of our largest customers.”

And Travis Perkins expects conditions to remain difficult across the group for some time yet, declaring that “macroeconomic data has been weaker in the first half of 2017, and recent lead indicators, including consumer confidence and housing transactions, have painted a mixed picture for the near-term performance of the Group’s end markets and this is expected to continue in the second half of 2017.”

On shaky foundations

The City expects these pressures to result in a 4% earnings drop in 2017, the second successive annual decline if realised. But Travis Perkins is expected to get back on the front foot from next year — a 6% bounce-back is currently predicted for 2018.

Still, I reckon predictions of a recovery any time soon may be a stretch too far as the British economy steadily cools and the building sector cools with it. Indeed, latest construction PMI data released today revealed a reading of 51.9 for July, the slowest rate of growth for almost a year.

I believe investors should forget the conventionally-low forward P/E ratio of 13.1 times given the chance of stinging forecast downgrades in the weeks and months ahead. I would consider the FTSE 250 stock a risk too far right now.

Recruit a ‘beaut’

I reckon those seeking solid earnings growth in the near term and beyond would be better served by checking out Robert Walters (LSE: RWA).

The recruitment specialist — whose share price on Wednesday climbed to fresh record peaks just shy of 490p — has a long record of double-digit earnings expansion, a quality the City does not expect to cease any time soon.

A 10% advance is pencilled in for 2017, and an extra 12% bounce is predicted for 2018. And these projections also make Robert Walters decent value for money, a forward P/E ratio of 15.9 times is roughly in line with the widely-regarded value benchmark of 15 times.

I am confident that the small-cap can deliver on these predictions thanks to its broad geographic footprint. Indeed, revenues surged 17% during January-June, it advised last week, to £562.7m, Robert Walters enjoying record performances across many of its Asian and European markets. And its spread across developed and emerging economies alike should lay the groundwork for excellent earnings growth long into the future.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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