The Motley Fool

Patisserie Holdings’ share price is smashing the returns from the FTSE 100

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.

Cupcake styled as a unicorn
Image source: Getty Images.

If you’re looking for big returns from the stock market, it can pay to look outside the FTSE 100. Sure, the index has jumped 12% in the last six weeks or so, but over the long term, its performance hasn’t been breathtaking. It’s returned just 7.1% per year, on an annualised basis, for the five years to the end of April.

In contrast, plenty of high-quality small-cap stocks have generated returns considerably higher than that. Here’s a look at one such stock that’s significantly outperformed the FTSE 100 in recent years.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Affordable luxury

£441m market-cap Patisserie Holdings (LSE: CAKE) is a leading cafe and casual dining group offering cakes, pastries and meals from over 180 stores in the UK. It currently operates across five differentiated brands including Patisserie Valerie, Philpotts and Baker & Spice, essentially catering to those seeking affordable luxury.

Listing on the AIM market just under four years ago at an IPO price of 170p, CAKE shares have since surged 155%, easily outperforming the return from the FTSE 100 of 13% (not including dividends) over that period. Revenues and profits have grown strongly in that time, and the group has begun paying its shareholders a dividend. Can the stock continue to keep smashing the returns from the large-cap index going forward?

Half-year numbers

A glance at the group’s half-year numbers released today reveals that Patisserie has solid momentum across its business right now. For the half year to 31 March, group revenue climbed 9.1% to £60.5m and diluted earnings per share increased 13.2% to 8.92p. Sales from the company’s website rose an impressive 63% to £2.6m. Net cash on the books increased to £28.8m, up from £16.2m last year and the group hiked its interim dividend by a healthy 20% to 1.44p per share.

Executive Chairman Luke Johnson was upbeat about the results, commenting: “The group has delivered a strong set of results in a sector which has well-documented challenges. Our vertically integrated and flexible business model enables us to deliver consistent profits with our affordable treats remaining popular with our very diverse customer base.” He added that the firm remains focused on organic growth and with a strong balance sheet, continues to assess acquisition opportunities which will have a strategic and cultural fit.

Compelling investment thesis

Analysing the numbers, the outlook for CAKE shares looks good, in my opinion. Revenues and profits are trending up, cash flow is strong and dividends are rising. Furthermore, with a high current ratio, a low debt-to-equity ratio, and an attractive return on equity, it also meets three key must-haves that Warren Buffett looks for in a stock when investing.

The shares currently trade on a forward P/E of 23 and while that’s not an overly cheap valuation, I think it’s a fair price to pay for a ‘slice’ of this fast-growing niche business. I believe Patisserie Holdings shares have considerable long-term potential.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Edward Sheldon has no position in Patisserie Holdings. The Motley Fool UK has recommended Patisserie Holdings. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.