RPC Group (LSE: RPC) is far from a household name but the company's rigid plastic packaging is something the majority of us will use every day since they are used to hold Unilever and Nestlé food, L'Oréal makeup and a slew of other consumer and industrial products.
And with a sterling track record of shareholder returns, strong competitive advantages and considerable growth potential, shares of the company are looking quite cheap at their current valuation of 12.6 times forward earnings.
This relatively sedate valuation is largely a reflection of the company's reliance on continued global consumption growth as well as its highly acquisitive business model that can create headaches when attempting to forecast future cash flows and thus valuations. Furthermore, at least one analyst has raised the prospect of accelerated acquisitions and heavily adjusted earnings figures being used to mask underlying weakness in the business.
Thankfully, in its Q1 trading statement released this morning, the board outlined its desire to change measures of management performance to emphasise cash flow in response to analyst concerns. Furthermore, the company called a halt to large acquisitions for the rest of the financial year in order to press ahead with integrating recent purchases and focus on organic growth. Both of these measures should be welcomed by shareholders and will hopefully be matched by more in-depth financial disclosures.
These issues aside, the business is an attractive one for would-be investors. The European market for rigid plastic packaging is highly fragmented and RPC's increased scale gives it considerable advantages over smaller competitors.
In addition, adjusted margins, which take into account acquisition and other one-off costs, are impressively high. In the year to March the company reported £441m in adjusted EBITDA from £2.7bn in sales. While actual free cash flow was lower at £239m, this is still fairly good and rising fast. With good growth prospects, a 2.9% dividend yield and a new £100m share buyback programme announced this morning, RPC has certainly caught my eye and warrants further digging into.
Serving up bumper shareholder returns
After dropping 25% in the past six months shares of Domino's Pizza (LSE: DOM) now trade at 18.3 times forward earnings, much cheaper than they have been over the past five years. This sudden share price drop was caused by sputtering like-for-like (LFL) sales growth to start the year and fears that Pizza Hut was going to set off a price war in the UK.
However, I believe this represents the best moment in a long while to buy shares of the growing, highly profitable business at a great price. First off, total sales in 2016 rose 14.5% year-on-year (y/y) thanks to new stores and a still fantastic 7.5% rise in LFL sales.
And I don't believe growth will slow anytime soon as the company targets another 80 new stores in the UK this year alongside growing operations in Western Europe and Scandinavia. Even more attractive is the company's franchisee business model that keeps profitability high, operating margins hit 26.7% in the UK last year, net debt incredibly low at £34m, and provides a healthy 2.8% yielding dividend.
In short, Domino's is definitely one stock where I'd take follow Warren Buffett's advice to "be greedy when others are fearful."
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The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Domino's Pizza and RPC Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes