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3 growth stocks I’d buy before it’s too late

Photo: Tasty plc. Fair Use.

Rollout stories can be incredibly profitable ventures. If a given format, be it a bar, restaurant or shop, works well in one town centre, there’s a good chance it’ll work in another, facilitating rapid expansion. Companies like Starbucks and McDonald’s are perfect examples of highly profitable rollouts.

The problem however, is that rollouts can be pretty expensive. Profits often only kick-off once a rollout story becomes self-funding, or when the cash generated by its operations is greater than the capital required to open new locations. In this article I’m going to reveal three promising rollout stories and take a look at the respective funding situations.

Something Tasty For Everyone

Tasty (LSE: TAST) operates the Wildwood casual dining brand which sells a wide variety of food, though largely Italian. It aims to provide “something for everyone”, with choices that range from steaks to pizzas to risottos. It has 61 locations and expects to open a further 16 by the end of financial year 2017.

The company’s expansion is not yet self-funding, but I expect it to be so by the time it has around 95-100 restaurants. Therefore, it should reach this level in a couple of years. I believe the company could be worth well over double its current market cap in the next three or four years. The management team is top quality too. The Kaye family, the masterminds behind 10-bagger Prezzo, are leading the rollout which helps inspire confidence.

Viva la revolución

The Revolution and Revolución de Cuba bars operated by Revolution Bars Group (LSE: RBG) offer premium cocktails in a Cuban-styled setting. With an estate of 66 bars, the company is already self-funding. It spent £12.8m on rolling out new bars and upgrading old ones last year, but generated £14.2m in cash from its own operations.

The company’s 2% like-for-like sales growth isn’t all that exciting but if you include the four new sites opened last year, sales jumped 12.7%. Better yet, the company’s valuation looks rather undemanding. The PE is only 16 times last year’s earnings. For a debt-free, fast growing, self-funding roll-out with a reputable format, that seems a steal.

A Greek, an Italian and a Grill

The Fulham Shore (LSE: FUL) operates a number of London-based restaurant franchises, including The Real Greek, Bukowski Grill and sour-dough pizza chain Franco Manca. All of these franchises operate in the casual dining market, typically charging between £8 and £16 a head.

Admittedly I’m not as familiar with this company as the other two I’ve mentioned, but the Franco Manca brand is well-regarded in London. Recent financial results imply some success too, with revenue jumping 43% in the first half of this year and operating profit following suit with a 42% increase. The company says it must invest in its central operations, so I wouldn’t be surprised if margins take a little bit of a hit in the short term. The company generated £7.1m in cash last year and spent £9.3m on its estate. I believe the company will likely be self-funding in the next few years, although with a market cap of £119m, this is perhaps the most expensive rollout I’ve mentioned today.

None of these stocks look conventionally cheap, but if they can hit the point of self-funding and maintain success with their formats, I imagine future returns could be attractive.

If you're not interested in these growth ideas, or if you believe the increasing minimum wage and rising rent costs could cause them issues, I'd urge you to download a free investment report. It reveals The Motley Fool's top growth stock company.

The business in question has delivered a 284% return in the last five years, courtesy of its effortless expansion. We believe this best-of-British brand has barely scratched its international potential. Our analysts believe the company could still increase four-fold in value. 

To download the report free of obligation, click here

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