Shares of home assistance service provider Homeserve (LSE: HSV) have risen by 130% over the last three years. The group has made a comprehensive recovery from past regulatory problems, and today's interim results suggest growth remains strong.
It's a similar story at carpet-maker Victoria (LSE: VCP), whose stock has doubled over the last two years. The group's acquisition-led strategy still seems to be working well.
Shareholders of both firms may be questioning whether it's time to take some profits, after such a good run. In this article, I'll take a closer look at the latest news from each firm.
Is the good news in the price?
Homeserve reported a 20% rise in sales, and a 13% increase in adjusted earnings per share for the six months to 30 September. But the group's net debt rose by 25% to £253m, serving as a reminder that an increasing amount of Homeserve's growth is coming from acquisitions.
The acquisition of American firm USP helped to increase Homeserve's total customer count by 14%, to 7.5m. But in the UK, customer numbers rose by just 2%, suggesting opportunities for organic growth are relatively limited in the firm's home market.
A second point worth noting is that Homeserve's adjusted operating margin fell from 11% to 10% during the period. Margins fell by 1% in the UK, France and Spain. Homeserve's operations in the USA remain loss-making, despite revenues rising from £59.2m to £86m during the period.
After a 42% gain so far in 2016, Homeserve trades on a 2016/17 forecast P/E of 24. If earnings rise by 20% as expected next year, then this should fall to a P/E of 20. However, the dividend yield is now below average for the FTSE 250, at just 2.4%. Profit growth could also slow, if the pound regains strength against the dollar or the euro.
Homeserve may continue to deliver attractive returns through acquisitions. But in my view, most of the value seen a few years ago is now reflected in the group's share price.
Carpet maker Victoria has been a runaway success since executive chairman Geoff Wilding took control of the firm in 2012. Mr Wilding, who has a 33% stake in Victoria, has masterminded a series of successful acquisitions, which have lifted sales from £77m in 2012, to £255.2m last year.
Today's interim figures show that growth is continuing. Revenue rose by 45% to £153.4m during the six months to 1 October compared to the same period last year, while adjusted earnings per share rose by 58% to 10.4p. The group's net debt fell by 16% to £67.7m, despite the recent acquisition of Ezi Floor for £6.5m. This highlights Victoria's strong cash generation, and suggests to me that the group's use of debt has not been excessive.
Although Mr Wilding has previously faced criticism for receiving very generous stock options, he has delivered impressive returns for Victoria shareholders.
Based on today's results, I expect Victoria should hit full-year forecasts of 21.7p per share. This puts the stock on a forecast P/E of 12.5, which seems quite reasonable. Although there's no dividend, the risk of holding on seems relatively low.
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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Homeserve. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.