Can Character Group PLC (143%), Betfair Group plc (130%) & Ted Baker plc (67%) Keep Climbing Next Year?

Do Character Group PLC (LON: CCT), Betfair Group plc (LON: BET) & Ted Baker plc (LON: TED) have further to go?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When you see a stock like Character Group (LSE: CCT) climb by 143% in just 12 months, to 500p, you’ve got to take notice — especially when, even after such a rise, we’re still looking at a forecast P/E of only 12. The City’s expectations for the year just ended in August 2015 are likely to be met too, as the company has confirmed that it “expects to deliver a year end result in line with market expectations“.

But look back over the longer term and we see a very erratic share price and a chart full of spikes, so what gives? The thing is, Character Group owns a number of toy brands (including Scooby Doo and Fireman Sam), but that can be a very faddish market — one year’s must-have toy is soon past its sell-by date, and there’s no guarantee of a new blockbuster for next year.

It’s hard to guess where Character Group shares will go next, and there are precious few analysts covering the £100m AIM-listed company — eyes peeled for results due the first week of December.

Gambling growing strongly

Online gambling is pretty big business, as a look at Betfair (LSE: BET) clearly shows. The shares are up 130% in a year, to 3,450p, and up nearly 200% in two years. Some of the recent optimism is due to the firm’s planned merger with Paddy Power, as consolidation in the business is becoming the name of the game. Paddy Power has revealed an interim net debt for the first time in years, but the combined company will have a very attractive range of services.

The big problem, though, is valuation. Betfair’s shares are trading on a P/E multiple, based on forecasts for the year ending April 2016, of a pretty massive 40 — and even the 20% EPS growth currently penciled in for 2017 would drop that only as far as 33. That’s a very serious growth valuation, and we’d need to see earnings more than double from today’s levels to get it closer to the FTSE 100 long-term average.

A fashion winner

My third for today is Ted Baker (LSE: TED), whose shares are up 67% in 12 months, to 3,402p — and over five years we’ve seen a five-bagger. But again, we see shares on a seriously high growth valuation and a forward P/E of 35.

Growth has been going well so far, with the first half of the current year bringing in a 25% rise in revenues, providing a 23% boost to adjusted EPS and allowing the company to lift its first-half dividend by 17%. The top-end fashion label is attracting an increasing following from an growing pool of rising wealth around the world, with new licensee stores opened in Azerbaijan, Dubai, Qatar, Saudi Arabia, Taiwan and Thailand during the half.

The risks are that fashion is fickle, and that there might be too much growth expectation built into the current share price — we have a PEG ratio here of around 2, which is more than twice the maximum that growth-seekers tend to look for.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Betfair Group. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »