3 UK shares I’m avoiding in April 2023

It is clear that the current market is one of the stock pickers. Those who can identify growing companies with strong fundamentals will be superior to those who buy companies that excel during speculative periods. So which three UK stocks could struggle in market uncertainty?

JD Wetherspoon

JD Wetherspoon (LSE:JDW) owns and operates 852 UK pubs. The company is profitable this year, but faces a challenging 2023 as high interest rates affect the economy.

Whether customers continue to visit will play a large part of the meeting of the earnings of 30%. To calculate the fair value, it can be useful to use the discounted cash flow calculation, establishing the appropriate share price based on the present value of current and future earnings. The current share price of 660p is 89% above the calculated fair value of 336p.

Considering the earnings growth and profit margin, the current price-to-earnings (P/E) ratio of 43 times is also higher than the fair value of 25 times.

These calculations show that substantial growth has been priced into the stock. If the company can retain customers, the investment may be profitable. However, if customers feel tension, and earnings begin to decline, then it seems likely that this high valuation will dissuade investors.

Ceres Power

Ceres Power (LSE:CWR) is developing fuel cells in North America, Asia and Europe. Shares in the company rose sharply in 2020 as enthusiasm for speculative growth stocks increased. However, with the company still unprofitable, inflationary and more restrictive economics led to a decline in stock prices.

It is possible that the stock is still very overvalued. The price-to-sales (P/S) ratio of 29.1 times is higher than the industry average of 1.4 times. Looking at discounted cash flows, the fair value of 41p is 685% above the current price of 326p.

There are some positive signs. The 50% earnings growth forecast is high, the company has no debt, and the product seems effective. But with no profit in the next three years, the investment in the company is hard to justify.

Polymetal International (LSE:POLY) mines precious metals such as gold and silver in Central Asia and Europe. The company is believed to be profitable in recent years. However, it has not been able to turn a profit this year, as supply chain and geopolitical tensions are limiting the business.

More volatile than 90% of UK stocks, this company is not for the faint hearted. On average, the stock moved 12% weekly as investors assessed the company’s viability through geopolitical tensions.

The main concern is the uncertainty in the main markets of Russia and Khazakstan. Analysts have suggested that Polymetal may re-list on the Abu Dhabi stock exchange due to British stocks linked to Russia’s struggle in London Stock Exchange.

The price-to-sales (P/S) ratio of 0.4 is lower than the industry average of 1.3, and demand for the precious metal continues to grow due to the adoption of electric vehicles. However, with Polymetal struggling to convince investors of its long-term future, I would not consider it part of my portfolio.

What’s next?

All three of these UK stocks have one thing in common – uncertainty. Whether this is a question to keep up with the expectations of investors or retain customers, I am looking to invest money elsewhere.