Shares of online fashion retailer Boohoo.Com (LSE: BOO) have risen by 250% over the last year. The stock now trades on a 2017/18 forecast P/E of 56.
It's easy to think that the shares must now be fully priced and that it's too late to invest. That may be true, but it's worth remembering that Boohoo.com is only around one-third the size of rival ASOS. This week's news suggests to me that Boohoo's ambitious founders may well be able to reduce this gap over the next couple of years.
Could Boohoo double again?
Boohoo has just acquired the brand and customer databases of failed US fashion retailer Nasty Gal. The main value of this acquisition is that it expands the firm's reach into the US market.
This is likely to be a key route to growth for Boohoo. During the 10 months to 31 December, its US sales rose by 152% to £34.9m. What makes this so exciting is that during the same period in the UK, Boohoo.com sold £146.7m worth of stock. That's four times as much.
These figures suggest to me that the Boohoo's current US sales are just a drop in the ocean of what might be possible if it can achieve the same kind of market share it has in the UK.
It's hard to know how big it could become. An obvious comparison is ASOS, which reported sales of about £1,445m last year. Boohoo is expected to report sales of £289m for the current financial year.
Although it may well face growing pains at some point, I believe that Boohoo shares may still offer significant upside from current levels.
Of course, any investment in a highly-rated growth stock carries a serious health risk -- if anything goes wrong, the stock could plummet. But I wouldn't sell it just yet.
Surprise beat suggests further growth
Growth companies eventually go ex-growth and enter a period of maturity. This often results in the company's shares falling onto a much lower P/E rating.
One company I've been expecting to go ex-growth for some time is retailer JD Sports Fashion (LSE: JD), which owns Millets and Blacks.
JD Sports has risen by almost 200% over the last two years. The group's shares surged higher at the start of January after it reported like-for-like sales of 10% for the 49 weeks to 7 January. That's outstanding for a bricks-and-mortar retailer.
JD Sport has repeatedly beaten market expectations over the last few years. Management now expect adjusted pre-tax profits for the current year to be "up to 15%" ahead of consensus forecasts of £200m.
Earnings per share are expected to grow by 15% in 2017/18, and the shares now trade on a forecast P/E of 17.5 for the year ahead.
This company may outperform again during the coming year, but if it doesn't, the group may choose to start returning some of its £231m net cash to shareholders. The current 1.5p dividend is covered 11 times by forecast earnings and could easily be increased.
As with Boohoo, there's a certain risk in buying JD Sports at current levels. However, given the group's track record, I would hold onto the shares until concrete signs of a slowdown emerge. Further gains are definitely possible.
Don't miss our new growth stock tip
If you're looking for fast-growing fashion firms to add to your portfolio, then you should probably consider the company featured in A Top Growth Share From The Motley Fool.
This well-known brand has been chosen by our top analysts as their top growth buy for 2017. They believe this stock has the potential to triple in value over coming years.
If you'd like full details of this potentially unique opportunity, download this FREE, no-obligation report today. To get your copy, simply click here now.
Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended boohoo.com. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.