2 disappointing growth stocks I’d buy for long-term gain

Royston Wild looks at two great shares for patient investors.

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Shares in Young & Co’s Brewery (LSE: YNGA) were unaltered in Tuesday business in spite of the boozer giant releasing sunny trading details.

In its AGM statement Young’s advised that in the 13 weeks from the start of April, managed house revenues rose 10.8%, or 8.6% on a like-for-like basis.

The firm’s “very good start” to the fiscal year has been underpinned by Britain’s recent heatwave, chairman Stephen Goodyear commented. He noted that “dry and warm weather in April and the longest continuous hot spell in June for over 40 years has particularly benefitted our beautiful gardens and river-based pubs.”

In sound shape

Still, Young’s took the time to address the dangers created by an increasingly-challenging economic environment and the uncertainty created by Brexit and the outcome of June’s general election. It also alluded to the increased cost pressures brought about by rising business rates and the introduction of the National Living Wage.

We operate very much at the premium end of the sector and the resilience of this segment’s customer base has, so far, been encouraging,” Goodyear said.

Consumers, when they do go out, are looking for an experience and going to a Young’s pub is seen as an affordable lifestyle choice — a treat but not an extravagance.”

The City does not believe Young’s is immune to the tough trading environment, and expects the company’s recent run of double-digit earnings increases to grind to a halt in the year to March 2018 — a 1% decline is currently anticipated.

However, this year’s projected reverse is anticipated to be nothing more than a temporary setback and the Wandsworth business is expected to rebound with a 9% advance in fiscal 2019.

And I agree with this viewpoint. I reckon Young’s should remain a solid long-term earnings generator thanks to its focus on the more affluent end of the market, while its thirst for acquisitions and drive to bring its tenanted pubs into its managed house estate should also boost profits.

Although a slightly-elevated forward P/E ratio of 19.9 times may deter many investors, I reckon the pub giant’s recent fall to 10-month troughs represents a decent buying opportunity.

Flying favourite

Budget flyer easyJet (LSE: EZJ) is another stock expected to endure some earnings trouble in the near-term.

In the year to September 2017, the Luton business is anticipated to report a 27% earnings reverse, worsening from the 22% decline in the previous year.

While sterling weakness and intense competition may be troubling easyJet right now, I believe the airline’s long-term outlook remains robust. Not only does the low-cost sector continue to expand at a stunning pace, but the company’s ongoing route expansion drive should deliver ample revenues growth in the years ahead.

On top of this, the likelihood of crude prices remaining depressed should give the bottom line an extra shot in the arm.

Like Young’s, easyJet also deals on a prospective P/E multiple which sails above the widely-respected value benchmark of 15 times or below. Still, I reckon a ratio of 17.7 times is still decent value given the carrier’s exceptional growth opportunities.

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.

Royston Wild has no position in any shares 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.

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