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

Shares in Boohoo.Com plc (LON: BOO) have flown, but here’s a potentially better bargain that could be just starting.

| 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.

I love a growth story — but I think I’m getting good at spotting a short-term overblown one these days.

I reckon I’m seeing that with BooHoo.Com (LSE: BOO), just as surely as I saw it with ASOS before. In the latter case I was sure the early share price rise was too much, too soon — I said it at the time and I’ve been proved right, as the shares crashed and have still not regained their early overblown peak.

Looking at Boohoo I see impressive rising profits for sure, and I certainly like the look of that. And forecasts for EPS growth of 38% in the year to February 2018 followed by a further 24% the year after look very tempting. But I must note that we’re already seeing a slowing in early growth, after last year brought a 97% rise and the year before racked up 48%.

Too expensive

Now, those are still great forecasts, but to put them into a valuation context, let’s look at PEG ratios. The PEG compares the prospective P/E ratio with the expected EPS growth to try to see if the current share valuation is justified by growth expectations. A value of 0.7 or less is often seen as a great indicator, while anything under around one is still pretty good.

Forecasts for Boohoo suggest a PEG greater than two for next year, rising to nearly three a year later. And P/E multiples come in at 84 and 69 for the two years respectively — the FTSE 100 average is around 14.

If the shares aren’t significantly cheaper than today’s 195p sometime in the medium-term future, I’ll be ready to ingest some headwear.

Better growth prospect

I’m more impressed by the growth prospects for oil and gas explorer Serica Energy (LSE: SQZ).

Having faced the oil price crisis and come out of it with the price of a barrel hovering around $50, I see the crushing pressure of super-low prices that critically endangered a number of indebted and unprofitable companies as receding, and I reckon we’re emerging into a new period of optimism for explorers.

Serica is profitable and has been for a couple of years, and we’re seeing forecasts that would double earnings per share this year to produce a very low P/E of only a little over four. Of course, the erratic nature of oil exploration profits means we shouldn’t treat this measure in the same way we would for most other sectors, but Thursday’s interim results do leave me feeling a little on the bullish side.

Growing profit

The company reported a post-tax profit of $10.3m, compared to a loss this time last year of $2.8m, and I was impressed by an operating cost (including transportation and processing) of $14 per barrel of oil equivalent. That’s low, and it suggests Serica has a reasonable safety margin should we enter a new phase of volatile oil prices.

Investors have been a little cautious of late due to an operations delay at the firm’s Erskine platform, but an update this week told us that production has successfully recommenced.

The Erskine field averaged 3,100 barrels per day up until May, and 2,800 barrels over the full period. And now it’s back online, I don’t see any great fears.

Serica’s period-end cash of $30m with no debt makes me see it as relatively low risk for the sector.

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.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended boohoo.com. 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

Photo of a man going through financial problems
Investing Articles

I asked ChatGPT to name the FTSE 250 share it would buy in a heartbeat – and it went mad!

Harvey Jones wondered whether artificial intelligence was up to the job of finding him a brilliant FTSE 250 share to…

Read more »

Tanker coming in to dock in calm waters and a clear sunset
Investing Articles

Is the BP share price primed for lift off?

As an activist investor takes a substantial holding in BP, Andrew Mackie assesses what it will take to energise the…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

No savings? I’m using the 5-step Warren Buffett method as I aim to get rich

Christopher Ruane outlines a handful of investment techniques he uses, inspired by the incredible stock market record of Warren Buffett.

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

With a spare £3,000, here’s how a new investor could start buying shares

Our writer explains how someone with a few thousand pounds and no prior stock market experience could start buying shares…

Read more »

UK money in a Jar on a background
Investing Articles

£10,000 invested in Greggs shares in 2020 has made this much passive income…

Greggs shares have struggled lately due to economic weakness and rising costs. Are they still worth considering for an ISA…

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Don’t look now, but the FTSE 100’s beating the S&P 500 in 2025…

So far this year, UK stocks have been doing better than their US counterparts. So is the FTSE 100 the…

Read more »

Investing Articles

How much would someone need in UK shares to earn £5,000 in passive income each month?

Thousands of Stocks and Shares ISA investors have built up more than a million pounds and can sit back and…

Read more »

Investing Articles

£10,000 invested in Tesla stock 1 month ago is now worth…

Tesla stock is remarkably volatile for a mega-cap company. While this presents some opportunities for investors, it’s also inherently risky.

Read more »