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 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

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Is now the right time for me to buy revived FTSE national institution Marks and Spencer?

Marks and Spencer was once a revered FTSE 100 firm, but poor decisions led to its demotion in 2019. Now…

Read more »

Market Movers

Up 11% today, can this FTSE 250 stock finally get motoring?

Jon Smith explains why the Aston Martin share price has jumped this morning, but urges caution after he picks apart…

Read more »

Investing Articles

With £456m of net cash, FTSE 100 stock easyJet’s ready for take-off

Our writer's been positive on this FTSE 100 for some time, but these Q3 results and its growing cash pile…

Read more »

A senior woman sits up on the exam table at a doctors appointment. She is dressed casually in a blue sweater and has a smile on her face as she glances at the doctor. Her female doctor is wearing a white lab coat and seated in front of her as she takes notes on a tablet.
Investing Articles

Primary Health Properties: a FTSE 250 REIT with a 6% yield, a growing dividend, and a positive outlook

After its latest results show rental income growth, Stephen Wright's looking to buy a FTSE 250 REIT set to benefit…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

How much passive income could I make for every £1,000 invested in Aviva shares?

Even a relatively small investment in Aviva shares could generate much greater passive income, particularly if the dividends are reinvested…

Read more »

Close-up of British bank notes
Investing Articles

I’m considering 100 shares in this FTSE 250 gem to aim for £300 a month in dividends

Mark Hartley outlines why a lesser-known banking stock from the FTSE 250's worth considering for an income portfolio in 2024.

Read more »

Investing Articles

History suggests these UK shares might soar if interest rates are cut in August

Some UK shares could rocket if interest rates fall from its 5.25% high next month. And there's one our writer…

Read more »

Female Doctor In White Coat Having Meeting With Woman Patient In Office
Investing Articles

Here’s why H1 results could boost the AstraZeneca share price

The AstraZeneca share price has been a success story in the past five years. With H1 results due, can it…

Read more »