Why I believe this FTSE 250 dividend stock could double

Cineworld‘s (LSE: CINE) decision to swoop on US peer Regal Entertainment last year lumped the group with billions of pounds in additional debt. However, it also tripled its annual revenue and transformed the business into one of the world’s largest cinema chains almost overnight.

And as it builds on its position in the market, I believe shares in the firm have the potential to double over the next few years.

Double your money

When Cineworld first announced that it was planning the £4.5bn deal for Regal, I was initially sceptical that management could make it work. The business was taking on a tremendous amount of debt to expand in a region where UK companies have traditionally struggled.

But so far, everything seems to be going to plan. Back in August, the company announced the integration process is ticking along nicely, and management now expects to exceed the initial $100m cost synergies target it proposed when the merger was first announced. During the first half of the year, the opening of six new cinemas with 56 screens helped drive a 10.8% increase in pro forma revenues, and adjusted cash profits jumped 14.1% year-on-year.

As long as the company can maintain this performance, I believe the shares have the potential to double from current levels. For the full year, City analysts have pencilled in earnings per share (EPS) of 20.5p, giving a forward P/E of 14.4 for 2018, rising to 25p for a forward P/E of 11.8 for 2019. In comparison, the stock’s five-year average P/E is just under 24. A return to this multiple based on current City earnings projections for 2019 implies the shares could be worth as much as 600p, a little over 100% above the current level. As well as this capital gains potential, there’s also a dividend yield of 3.8% on offer for investors.

So overall, as Cineworld continues to grow and pushes ahead with the integration of its new US business, I think there’s significant potential for the stock to double from current levels.

Earnings growth

Another business that I believe has significant capital growth potential is Tyman(LSE: TYMN). Over the past few weeks, shares in this supplier of components to the door and window industry have lost around a fifth of their value on no news flow.

Some of these losses have been reversed today after the company told investors that it is trading in line with market expectations for the full year. The market is expecting, according to data compiled by Tyman itself, the group to report underlying operating profit growth of as much as 13% for 2018. EPS are expected to jump 60%.

Based on these numbers, the stock is trading at a relatively undemanding forward P/E of 9.8, falling to an estimated 8.8 for 2019. While Tyman is not as cheap as Cineworld, I still think that it has significant potential to rally from current levels.

Indeed, investors have previously been willing to pay as much as 15 times earnings for it, and as growth returns, I wouldn’t rule out a return to this multiple, giving a possible upside of around 48%. A dividend yield of 4.4%, in my opinion, only adds to the stock’s appeal.

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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.