I believe Domino’s Pizza (LSE: DOM) is one of the UK’s top growth stocks, as I have written many times before. And today’s training update from the company reinforces this view.
The company reported that for the 13 weeks to the beginning of April, total group sales increased 10.4% on an organic basis, excluding the impact of acquisitions or disposals. Including the effects of these portfolio changes, total sales grew by 18.3% year-on-year, a significant jump helped mainly by a rise in international sales from £4.5m for the period last year, to £25.6m this year.
Total sales in the UK and Republic of Ireland increased 10.4% on a reported basis and 7% on a like-for-like basis in the UK alone.
Pizza rush
These figures show that despite concerns about saturation in the fast food market across the UK, customers are still flocking to Domino’s offering.
CEO David Wild believes that customers are attracted to be group’s “clearer value proposition,” a conclusion based on customers’ “strong scores for value for money and overall satisfaction.” As long as Domino’s can maintain this reputation, the company’s growth is unlikely to slow any time soon, especially in the international market. Here the enterprise is still fairly underrepresented in the markets where it has exposure. In fact, only around 150 of the firm’s 1,203 outlets are overseas.
City analysts are currently forecasting earnings per share growth for 2018 of 25%, followed by growth of 11% next year. Based on these earnings targets, shares in the company are trading at a forward P/E of 21 falling to 19 by 2019. This might look expensive at first glance, but shares in Domino’s have always commanded a high valuation. The firm’s double-digit earnings growth rate, coupled with its franchise business model (and the high-profit margins that come with the franchise model) are certainly worth paying a premium for in my view. That’s why I would buy and hold the stock for the next two decades.
Growing industry
Another potential long-term investment I like is Eddie Stobart Logistics (LSE: ESL).
Logistics is a low-margin, tedious business, but it is also an essential one and demand for logistics services is only going to grow as the world’s population expands and consumers do more shopping online and less in stores.
Among other businesses, Eddie Stobart, which has one of the most recognisable names in the industry, provides e-commerce fulfilment and logistics services to a range of retailers.
However, this business has only been independent for around a year, and it is still, in my opinion, finding its feet. Over the next few years, as management leverages the group’s reputation for building its independent offering, I believe the shares could be set for a substantial re-rating.
City analysts seem to agree with earnings per share growth of 116% pencilled in for 2018, the group’s first full year as an independent company. For 2019, earnings per share are expected to grow by a more sedate 11% as the firm settles into a more sustainable growth trend.
It seems as if the market is overlooking this as, at the time of writing, the shares are trading a forward P/E of only 12.1, and are projected to yield 4.5% for 2018. With this being the case, I believe now is the perfect time to make the most of the opportunity.
