With £2k to invest, I’d buy shares in this growing business and hold for 10 years

Stellar revenue growth and resurging profits attract me to this growing company in a resilient sector.

| 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.

The market likes today’s full-year results report from veterinary services provider CVS Group (LSE: CVSG) and the shares are up more than 6% as I write.

One feature of the trading record over the past few years has been steady annual increases in revenue – people love their pets and are keen to look after them properly, which has no doubt helped CVS to grow.

Impressive figures

But the company must be doing many things right because today’s figures are impressive. Revenue rose just over 24% compared to last year, cash from operations increased by almost 12% and adjusted earnings per share moved a shade over 10% higher.

In a show of confidence, the directors slapped 10% on the full-year dividend while explaining in the report that strong financial performance and cash-generation supports the increase. On top of that, there’s sufficient funds for further investment in the business.”

However, you won’t get rich on dividend income from this stock because the payment is covered about 8.5 times by adjusted earnings. It’s clear the directors are holding plenty of cash back, which is quite normal when a firm has plenty of ongoing growth prospects. With the shares near 967p, the forward-looking dividend yield for the current trading year to June 2020 runs close to just 0.6%.

If you buy into CVS it’s likely to be for its growth, and the year was a story of two halves on that score. Chairman Richard Connell explained the first half of the year was “disappointing” and there was a “significant” improvement in the second half. He said the turnaround occurred because of actions the firm took to address the “key issues” which affected performance.

Bearing down on costs

Looking back at the earlier half-year results, it’s clear revenue growth remained strong, but the firm was having trouble squeezing profits from its turnover. Part of the issue was that CVS had been employing expensive locums to fill veterinary surgeon and nurse vacancies. However, it seems progress in hiring direct staff has reduced costs in the second half. 

The firm has also been tightening up procedures at some of its under-performing individual surgeries and working to train staff to maximise cross-selling opportunities across the business. Right now, CVS has 510 surgeries in the UK, the Netherlands and the Republic of Ireland, but acquisition activity has slowed because of generally high asking prices in the industry.

I like the look of the growth story here and I’m impressed with the way the firm consults its shareholders, which seems to be the source of initiatives to add value, such as cross-selling and not over-paying for acquisitions and other things. Connell pointed out that CVS operates in a sector with favourable market and consumer trends, “which has proven resilient in past economic downturns.” 

Looking ahead, the outlook is positive and the firm isn’t bothered by the prospect of Brexit. I like this one and I’m inclined to pick up a few of the shares. Meanwhile, the forward-looking earnings multiple for the current trading year sits just below 20. I’d aim to hold for at least 10 years.

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.

Kevin Godbold has no position in any 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.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

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

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »