One growth stock I’d buy ahead of Boohoo.Com plc

Bilaal Mohamed thinks this men’s clothing retailer could be a better buy than Boohoo.Com plc (LON:BOO).

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The Alternative Investment Market (AIM) has been touted as the most successful growth market in the world, with over 3,600 smaller and growing companies joining since its launch in 1995.

Poster boys

That may be true. But over the years, AIM has also become something of a graveyard for fledgling businesses that didn’t quite live up to their potential. A procession of speculative resource stocks and unknown international companies have fallen by the wayside to tarnish the image of AIM and give it a reputation as a ‘Wild West’ market.

But in recent years, a few of these smaller businesses have indeed gone on to achieve greatness, online fashion retailers ASOS and Boohoo.Com (LSE: BOO) perhaps being the most celebrated. Valued at around £4.8bn and £3bn respectively, both companies could be viewed as poster boys for London’s junior market.

Mouth-watering prospect

While ASOS’s origins trace back to the start of the millennium, Boohoo was founded as recently as 2006, and has only been trading as a publicly listed company since 2014. Turn the clock forward just three-and-a-half years, and the online fashion retailer’s shares are now changing hands at five times their original IPO price of 50p, as sales and profits soar in equal measure. Manchester’s best kept secret has quickly evolved into a global fashion leader of its generation.

Despite the spectacular success, Boohoo certainly isn’t resting on its laurels. In its last completed financial year, pre-tax profits doubled to £30.95m, as revenues soared 51% to £294.6m, with the acquisition of PrettyLittleThing and the Nasty Gal brand representing a step change in the size, structure and operation of the group.

For me, Boohoo remains a mouth-watering growth prospect given the group’s plans for further investment and expansion. Its styles may be very affordable, but the company’s shares come with an eye-watering price tag. With the much sought after stocks currently trading on a sky-high price-to-earnings multiple of 84, I’d wait to buy on the dips.

Suits you sir

In the meantime, those still keen on venturing into the world of clothing retail, should in my view take a closer look at Moss Bros (LSE: MOSB). The men’s formalwear specialist may be trading on London’s Main Market, but at under £100m is less than half the size of new arrival Boohoo.

While other high street retailers have struggled of late, Moss Bros has bucked the trend as it reaps the rewards of ongoing investment in a strong brand identity, and continues to forge ahead with its store refit programme.

With steady growth forecast to continue, I believe a forward price-to-earnings ratio of 17 isn’t too demanding when compared to the five-year average of 23. Meanwhile, dividend payouts continue to grow, with a hearty 6.5% yield currently on offer for would-be investors.

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.

Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended 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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