A 'secret' growth stock I'd buy alongside Sirius Minerals plc
Park Group(LSE: PKG) is one of the market's more complex businesses. The company is the UK's leading multi-retailer, gift voucher and prepaid gift card business focused on the corporate and consumer markets. As you would imagine, such a business is highly seasonal, which means that a long term horizon is required to invest in the company.
The bulk of Park's revenues are generated during the second half of its financial year (six months to the end of March) with losses usually reported for the first half. Indeed, today the company published its figures for the six months to the end of September showing a "seasonal operating loss of £2.2m", up from last year's number of £1.6m.
Management is attributing this higher loss to "the larger scale of the business", as total billings for the period rose 7.3% year-on-year to £105.5m.
Looking forward, it would appear that Park is set for a great second half. According to today's release, order books are already running well ahead of the comparable period last year. City analysts are expecting the company to report total earnings per share growth of 8% for the year ending 31 March 2018, and then a further increase of 7% for the following fiscal period.
Park's seasonal business hides the company's actual value. For example, even though management is expecting a bumper Christmas period, shares in the company are trading down this morning as investors focus on the firm's higher loss for the period offering investors with a long-term outlook a chance to buy into the growth story. After today's declines, shares in the company trade at a forward P/E of 15.8 and yield 3.3% -- the payout is set to grow substantially in the years ahead.
Park's investment case is similar to that of Sirius Minerals(LSE: SXX).
Its value is hidden in the company's asset, or its flagship potash mine in Yorkshire. Various estimates predict that this asset could be worth several billion pounds, compared to the company's current market value of £1.1bn. However, building the mine is a long-term project and investors will have to wait several years before they can profit from the opportunity.
Investor caution here is understandable as plenty could go wrong between now and initial production. But I believe that, to a certain extent, this project is de-risked because of its size and possible impact on the surrounding area. If Sirius fails to get its mine into production, another entity will likely step in to take over.
As an investment, the risk/reward from investing in Sirus is highly attractive. As I've covered before, assuming everything goes to plan, when production is in full swing, the company's market value could rise to as much as $10.8bn, or £8.3bn, 650% above current levels.
What's more, if the company hits production targets (and it decides to payout just 10% of profit), investors could be set to receive a dividend yield of around 16% based on today's prices.
Make money, not losses
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.