This small-cap tip may have helped some Fools enjoy a handsome profit.
Last month I recommended members of the Motley Fool's Champion Shares service to sell Goals Soccer Centres
(LSE: GOAL)
. I tipped the small-cap operator of five-a-side football facilities back in October 2005 when the mid-price was 150.5p. When I told members to sell, the mid-price was 258p*.
Including dividends declared in the meantime, Champion Shares members have therefore enjoyed a total return of 72% within twelve months. During the same period, the FTSE All-Share produced a 16% total return.*
Reasons to buy
When I tipped Goals Soccer, I noticed five attractive characteristics:
1) Expansion: Goals Soccer had 14 five-a-side sites on the go this time last year and planned to have 31 by the end of 2008. Alongside (then) like-for-like sales growth of 10%, I was confident the group could generate rapid earnings growth during the next few years.
2) Management: Goals Soccer was still led by its founder, who had previously set up and sold another five-a-side chain. I was therefore happy the business had a proven and experienced boss.
3) Predictable: I felt five-a-side football was more predictable than many other 'roll-out' activities, such as casual dining or clothes retail. At Goals Soccer, matches only cost a few pounds per head and most were part of a formal league.
4) Competition: Goals Soccer claimed its up-to-date facilities, planning restrictions and high capital costs acted as barriers to new entrants. Certainly operating margins in excess of 30% suggested to me the group enjoyed a decent competitive advantage.
5) Valuation: I reckoned growing the estate to 31 sites could have produced earnings of more than 15p per share by 2009. I thought that earnings potential could in time support a 270p share price -- 80% ahead of my 150.5p tip price.
Reason to sell
In the last twelve months, I reckon Goals Soccer has not put a foot wrong. The expansion plan continues, with the site count up to 21 and recent interim figures showcasing a 65% improvement to earnings. But I think the share price has now got ahead of itself.
After fine-tuning my original valuation sums, I now find it difficult to justify a share price above 300p for 2009 when Goals Soccer expects 31 facilities to be up and running. So when the share price recently hit 258p, I thought the upside potential did not outweigh the possible downside should the company's roll-out falter.
Indeed, having originally targeted an 80% return over four years, I thought a 72%* return in one year was very acceptable. I note Goal Soccer's boss has recently sold 1m shares for 270p each, which suggests to me that he too thinks the shares may be overvalued.
What now?
I'm very pleased with my Goals Soccer selection. The company has progressed very well and though the shares may yet go higher, I believe much of the group's medium-term expansion is already in the price. I'm now hoping to unearth the 'next Goals Soccer' for Champion Shares.
Of course, I cannot promise any of my existing or future Champion Shares recommendations will earn ordinary investors a 72% gain in one year. In fact, some have gone down in value. But my sixteen share tips have on average beaten the market since the launch of Champion Shares in September 2005. The Champion Shares portfolio is up 12%** compared to the FTSE All-Share returning 11%** during the same time.
The identities of all my current recommendations are just a click away through this free 30-day trial. There is no obligation to pay and the trial can be cancelled at anytime. The trial provides full access to every tip write-up and subsequent update, as well as numerous other share ideas.
* Maynard advised readers to sell Goals Soccer Centres on 27 September, 2006 at 258p a share.
**Calculated on 11 October 2006, all Champion Shares performance and index figures are based on mid-prices taken at the time of recommendation and include declared dividends and exclude costs.
Risk Warning
You run the risk of losing money when investing in shares. Prices may change quickly, they may go down as well as up and you may not get back the full amount invested. You should not invest using money you cannot afford to lose. We have taken all reasonable care to ensure that all statements of fact and opinion contained in this publication are fair and accurate in all material aspects. Investors should seek appropriate professional advice from their stockbroker or other adviser if any points are unclear. Champion Shares gives general advice only, and the investments mentioned may not necessarily be suitable for any individual.
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