plc isn’t the only high growth stock that looks like it’s just getting started

Paul Summers thinks investors haven’t missed the boat with fast fashion star plc (LON:BOO) and this small-cap growth stock.

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Having 0wned stock in fast fashion giant (LSE: BOO) since April 2016, I’ve been tempted to sell on many occasions. Here’s why I’m continuing to resist the urge.

Same old story

As a company, Boohoo continues to fire on all cylinders with yet another storming set of numbers released earlier this month.

Over the four months to the end of December (which now includes the established Black Friday), it achieved record revenues for all of its brands “spread across all geographic regions“. The standout performer — PrettyLittleThing — grew revenue by a stonking 191% to £73.8m compared to the same period in 2016.

Raising guidance yet again, it now expects group revenue growth for the current year to be approximately 90% — up from the 80% predicted at the time it released its half-year numbers last September. 

So why is the company’s share price still roughly 30% lower than the highs achieved last summer? It looks like some investors have become concerned by the slight reduction in group gross margin mentioned in recent updates. Others may be wary that the market appears to have fully adapted to the company’s tendency to over-deliver. When expectations are already sky-high, there’s absolutely no room for error.

Nevertheless, I continue to believe that Boohoo’s best days still lie ahead. The increased investment in its distribution facilities is an indication of just how confident management is on the Manchester-based business’s ability to continue increasing sales. Moreover, the speed at which the aforementioned PrettyLittleThing and more recently acquired Nasty Gal brands have been integrated (and grown profits) suggests that further acquisitions can’t be ruled out.

With the company’s finances continuing to look sound (net cash of £127m) and the likelihood that its target market and low prices will cushion it from any sustained reduction in consumer spending, I remain bullish on the £2.1bn cap’s prospects.

Rising profits

Another company that looks likely to continue rewarding investors is lifestyle brand Joules (LSE: JOUL).  Since listing on the market back in May 2016, its stock has increased 64% in value. Based on today’s encouraging interim report, I can see this positive momentum continuing for a while yet.

Over the 26 weeks to 26 November, group revenue rose by 17.5% to £96.2m. In stark contrast to many retailers with a high street presence, Joules reported sales increasing by 14.2% at its stores. Online sales growth didn’t disappoint either, coming in at just under 20%.  

Given the shadow of Brexit and the benefits that come from geographical diversification, the 26.4% growth in revenue from overseas is a further positive. International markets now contribute just over 11% of the company’s total revenue — a figure that’s only likely to rise going forward. According to the company, it now has almost 1.1m active customers — an increase of 18% on H1 2016.

Perhaps most encouragingly, underlying pre-tax profit jumped 24.3% (to £9.3m) over the six months, leading management to state that full-year profit is now likely to be “slightly ahead of the range of analysts’ expectations”. The fact that retail sales over the seven-week Christmas period to 7 January rose 19.2% year-on-year certainly bodes well.

Thanks to its punchy valuation (28 times forecast earnings for the current year), Joules won’t appeal to those focused on finding value. However, today’s numbers, coupled with a fairly robust-looking balance sheet (£3m in net cash) and overseas potential could make it attractive to many growth hunters.

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.

Paul Summers owns shares in The Motley Fool UK has recommended and Joules Group. 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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