2 growth stocks to fall in love with
Card Factory(LSE: CARD), the UK's leading specialist retailer of greeting cards and gifts, has seen its share price hammered in recent years, plunging from highs of 399p in September 2015 to today's levels of around 245p. Strangely, over the same period the retail chain has been performing quite well, with healthy improvements in both sales and profits.
A good Christmas
In fact, in its last financial year the FTSE 250-listed company almost doubled its pre-tax profits to £83.7m from £42.7m the previous year. Its seems as if the market has taken a dim view of the slowdown in growth that's expected over the next couple of years and re-rated the Wakefield-based retailer accordingly. But after falling almost 40% from their peak, are the shares now oversold?
In its most recent trading statement, Card Factory reported good levels of growth over the Christmas period, aided by a combination of like-for-like-sales growth and the roll-out of new stores. For the 11 months to the end of December, like-for-like store sales improved just 0.4%. But this was in comparison to a strong prior year, with sales from its cardfactory.co.uk website growing 0.5% over the same period.
However, the performance of its online personal gifting business over at gettingpersonal.co.uk has been rather disappointing, with sales remaining broadly flat and well short of the company's 10% per annum growth target. All the while Card Factory's expansion plans have continued, with 51 net new store openings during the 11 months to December, bringing the total to 850.
Looking ahead to the current financial year that began on 1 February, the group has a good pipeline of new store opportunities and remains confident of continuing its historic opening rate of around 50 new sites every year. Card Factory's shares are currently changing hands at a 25% discount to a year ago. They look good value to me, trading at 12.6 times forward earnings for 2017/18 given analysts' expectations of continued steady growth over the medium term.
Buy the dips
Meanwhile another high street retailer that's expected to continue on a path of slow-but-steady growth is WH Smith(LSE: SMWH). In its latest trading update the mid-cap retailer reported a solid performance with total sales up 2% and like-for-like sales up 1% for the 21 weeks to 21 January.
The group's travel business, which includes outlets at airports, train stations, hospitals and motorway service stations, delivered good sales growth during the period. This was driven by ongoing investment and continued growth in passenger numbers, particularly in its airport stores over the Christmas holiday period. The retailer performed less well in its high street stores, but still in line with expectations, aided by new seasonal stationery ranges and spoof humour books.
In comparison to Card Factory, WH Smith's shares don't come cheap, trading at 16 times forward earnings for the current year to August. I would suggest that investors keen on further long-term growth should wait to buy on the dips.
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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended WH Smith. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.