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Why I’d back the Boohoo share price over a number of FTSE 100 stocks

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While many investors focus on the FTSE 100 when deciding where to place their hard-earned cash, a number of companies outside of the UK’s main index could offer impressive growth outlooks. One such business is AIM-listed online fashion retailer Boohoo (LSE: BOO).

It appears to be performing well at the present time while the wider retail sector continues to struggle. As such, now could be the right time to buy it alongside a small company that reported positive results on Friday.

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Strong performance

The small-cap in question is provider of fryer management and other services to commercial kitchens, Filta Group (LSE: FLTA). It released a pre-close trading update for the first half of 2018 which showed that it is performing in line with expectations. It has benefitted from new franchisees being added in the latter part of 2017, with further growth in its UK-based seals business and an increasing contribution from recently-acquired GMG also boosting its performance.

The company has been able to successfully dispose of its lower margin refrigeration business, while changing the structure of its European activities. It is seeking to make further acquisitions in order to add to its organic growth potential over the medium term.

With Filta Group forecast to post a rise in its bottom line of 22% in the next financial year, its strategy appears to be working well. Despite this, the company trades on a price-to-earnings growth (PEG) ratio of just 1.2. This indicates that it offers a wide margin of safety and may be able to generate significant share price growth. As such, it has the potential to outperform the FTSE 100 over the medium term.

Improving business

The prospects for Boohoo may also be better than for a range of FTSE 100 shares. The company appears to be well-placed to benefit from changing consumer trends both in the UK and across the globe. Its online focus means that it has managed to escape the painful transition being felt by bricks-and-mortar retailers. This could allow it to outperform many of its retail sector peers, while also offering investors a more consistent performance over the next few years.

In terms of growth potential, Boohoo is expected to post a rise in earnings of 17% this year, followed by further growth of 26% next year. Its PEG ratio of 1.8 does not appear to be excessive given that it is well-placed to generate continued growth beyond 2019. And with a continued focus on customer service and a relevant product offering, it could become a stronger operator due to improving customer loyalty.

Although the FTSE 100 may contain cheaper stocks than Boohoo at the present time, the growth potential on offer from the business could make it a worthwhile investment. While volatile, its risk/reward ratio appears to be favourable for long-term investors.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo 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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