It's often hard to consider buying a stock that's already delivered extraordinary profits for its shareholders. Have I missed the boat? Are the shares poised for a massive retrace? Such questions tend to figure prominently in our thoughts.
GB Group(LSE: GBG) has turned a £1,000 investment into £20,000 over the last 10 years, its shares having soared from 22p to 440p. Add in dividends and the annualised 10-year total return is a breathtaking 35%. To put that into context, the FTSE 100 return is less than 6%.
I'm going to put nagging questions like "Have I missed the boat?" out of my mind and consider GB's valuation and prospects, if I were to buy the stock today. Now is a good time to put it under the microscope, because it released its half-year results this morning.
The last full-year results were pretty impressive, with revenue growth of 19% (including organic growth of 12%) and a 24% increase in earnings per share (EPS). But today's numbers for the six months to 30 September are even more impressive. Revenue was up 40% (18% organic) and EPS soared 69%. The shares are little changed on the day but to be fair, the company had already signposted the revenue growth in a trading update last month.
Fighting fraud and cybercrime
Looking to the full-year, the City consensus ahead of today's results was for EPS of 12p, giving a price-to-earnings (P/E) ratio of over 36. On forecasts of a rise in EPS to 13.7p next year, the P/E falls to 32 or so but this is still a relatively high rating.
However, as a global specialist in identity data intelligence, operating in a world increasingly concerned with fraud and cybercrime, GB's prospects are underpinned by a great structural growth tailwind. Furthermore, in addition to organic growth, management has stated: "We will continue to seek acquisitions that will enable us to expand our capabilities, datasets and geographic presence."
In light of the sector's structural growth and GB's likely acquisitions, which of course don't figure in current EPS forecasts, I'm inclined to rate the stock a 'buy'.
Domino's Pizza (LSE: DOM) may not have delivered quite as extraordinary a profit for investors as GB, but it's still been pretty impressive. Its annualised 10-year total return is over 18%. So, in excess of three times that of the FTSE 100.
At 322p, Domino's shares are a good way below their last year's high near 400p. The current-year consensus EPS forecast of 14.4p gives a P/E of 22.4, which falls to 20.6 next year on forecasts of a rise in EPS to 15.6p.
Domino's near-term earnings growth isn't as strong as GB's, partly because the pizza group is sacrificing some margin to give customers a better deal in the current uncertain UK consumer environment. The company actually reported encouraging trading in this environment last month, and with it also having revenues from international operations, I think the fall in the shares from last year's high has presented a good opportunity to buy a slice of the business.
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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Domino's Pizza. 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.