One surprising growth stock I'd buy with Boohoo.Com plc

Growth stocks with double-bagging potential aren't always found in obvious places. Although fashion retailer Boohoo.Com (LSE: BOO) fits the stereotype of a successful internet business, my other stock choice doesn't.

Beximco Pharmaceuticals (LSE: BXP) is based in Bangladesh. Many investors automatically rule out such overseas stocks, but this one has a long and solid track record.

Established in 1976, the company specialises in making generic medicines. It also performs contract manufacturing for other pharmaceutical firms. Since 2011, sales have grown by an average of 25% per year, while profits have risen by an average of 23% per year.

But perhaps the most convincing proof of Beximco's quality is that over the last year, it's gained approval to sell several medicines in the United States, where regulatory barriers to entry are high.

The latest addition to the group's long list of export markets is Canada, where the company has just launched an eye allergy treatment, Olopatadine. Other countries to which Beximco already exports medicines include Australia, Latin America, many African and Asian countries, Germany and Austria.

On sale at a discount

Beximco's operating margin has averaged 23% since 2011, and has not varied by more than 2% during that time. But despite its consistently high profit margins, the group's shares are cheaper than most of its sector rivals.

The stock currently trades on a forecast P/E of about 12.5, with a prospective yield of 2.3%. I believe these shares could deliver attractive long-term gains.

Is Boohoo unstoppable?

When the founders of a hot growth stock start selling their shares, I'd usually say it was time to think about selling. But in this case I'm not sure.

Although Boohoo.Com joint chief executive Mahmud Kamani and his family cashed in £80m of shares in June, their remaining 38.57% stake in the company is still worth £1.1bn at current prices.

I don't think there's any sign that Mr Kamani or his co-chief executive Carol Kane are lessening their commitment to the firm. Nor is there any sign that growth is slowing.

During the three months to 31 May, the group's like-for-like sales were 78% higher than during the same period last year. This growth came from two main areas.

The first was the Boohoo website, where revenue rose by 48% to £86.4m and customer numbers rose by 24% to 5.2m.

But the second big area of growth was even more exciting. The firm's second major brand, PrettyLittleThing, delivered like-for-like sales growth of 305%. Sales rose from £7.6m during the first quarter of last year to £30.7m this year. Customer numbers rose by 146% to 1.6m.

If PrettyLittleThing can maintain this rate of growth, it could soon become as big as the Boohoo brand.

Management guidance for 2017/18 is for full-year sales growth of 60% and stable profit margins. The consensus view of City analysts is that this will result in earnings of 2.94p per share, putting the stock on a forecast P/E of 86.

Although I'd usually steer clear of such ambitious valuations, I think there's a chance that Boohoo.Com is the real deal and could merit such a high price tag. I'm not sure I could bring myself to buy at current levels, but if I was a shareholder I would probably continue to hold.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo.com. 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 us better investors.

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