Shares of Card Factory (LSE: CARD) are down more than 13% in the past year as analysts turn increasingly bearish on the high street staple's ability to continue posting like-for-like sales growth. But this recent sell-off means the company's shares now trade at a relatively cheap 14.5 times forward earnings while offering a very attractive 3.22% dividend yield.
For a growing, highly cash-generative business with a long track record of success, I think this valuation presents an attractive opportunity for bargain hunters to take a closer look.
There's also reason to believe bearish opinions may prove to be wrong. The company's Christmas trading statement revealed that in the final quarter of trading, like-for-like sales had recovered to their historical average of 1%-3% growth. Since this report was released in late January the shares have recovered 13% and I reckon if full-year results to be released on March 28 are positive, this rally has room to run.
The long-term outlook for the company is also quite bright as sales have skyrocketed 43% in the past five years due to continued organic growth and the steady expansion of the company's estate. With 851 stores at the end of 2016 and around 50 new additions each year, this record of top-line growth looks set to continue.
An added attraction is the company's vertically integrated business model that sees it design and manufacture all of its own cards in-house. This has allowed operating margins to increase to a very good 17.1% as of H1. This level of profitability is quite high for a retailer and kicks-off considerable cash flow to pay down the manageable net debt of 1.26 times EBITDA as well as increase shareholder returns.
Card Factory may not be an exciting business but it is reliable, growing quickly, returns wads of cash to shareholders and is reasonably valued. If that doesn't attract investors I don't know what will.
It may not be sexy, but...
It's been a rough year for another long-lived high street legacy, Dixons Carphone (LSE: DC). Shares of the electronics retailer have fallen over 25% in the past year as the weak pound has triggered fears of inflation and crimped margins for firms that import most of their products.
The company does indeed import the vast majority of its goods, but with its shares now trading at 9.8 times forward earnings while offering a 3.6% yield, investors should take a closer look. This is because, despite a reputation as something of a dinosaur, the company continues to grow nicely, with like-for-like sales up a full 4% during the Christmas trading period.
This represented the fifth straight year of positive sales momentum and shows that consumers still value a physical store to go into and try out the newest gadget before buying. Top-line growth is being supplemented by an increased focus on expanding margins that is paying off: pre-tax profits rose 19% year-on-year in H1 to £144m.
Improving profitability is also helping whittle down net debt, which fell from £378m to £285m year-on-year in H1. As net debt falls and earnings rise, the company's comfortably three times covered dividend has considerable scope for expansion. Like Card Factory, Dixons Carphone isn't a sexy business, but its growth and impressive dividends are enough to interest me.
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Ian Pierce has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.