The last time I covered Everyman Media (LSE: EMAN), I concluded that despite the firm’s premium valuation, it looked as if it offered a better “all-round proposition for investors” compared to larger peer Cineworld. Five months on, and the company hasn’t let me down.
Even though the stock has only added 4% since my last article, the underlying business has continued to push ahead. Numbers published today show revenue jumped by 32% to £24.9m for the six-month period ended 5 July. Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) increased 35% to £4.1m.
A growth business
Usually, I avoid using EBITDA figures for evaluating a business because they can be easily manipulated. In this case, however, I’m happy to bend the rules because Everman is still in its early stages of growth. The firm only has 2.5% of the UK cinema market (up from just under 2% in June 2017) and is aggressively chasing market share. One new venue was added during the six months to the beginning of July and management has committed to a further 15 new sites, almost doubling the current 22 venues in operation. Including the cost of opening new cinemas, Everyman’s profit for the period was just £768,000.
Still, even after including opening expenses, the stock seems cheap after adjusting for growth. Analysts are forecasting earnings per share (EPS) growth of 163% for 2018. The stock is changing hands for 40 times forward earnings, but after factoring-in EPS growth, it has a PEG ratio of 0.9, indicating that the shares are undervalued based on the company’s growth potential.
With this being the case, and considering the pipeline of opportunities still to come, I reckon Everyman is one of the best growth stocks out there.
Double your money
Another growth champion is FTSE 250 speciality chemical enterprise Synthomer (LSE: SYNT).
Over the past five years, Synthomer’s growth has blown the lights out. Net profit doubled between 2012 and 2017, while normalised EPS (before accounting adjustments) have jumped 150%. The stock has added around 140% over the same period.
As the firm builds on its established business, the City is expecting more of the same for the next few years. EPS growth of 12% is pencilled in for 2018, and 10% for 2019. These figures put the stock on a forward P/E of 17.
What I like about Synthomer is that it is a well-established business in a niche market — supplying aqueous polymers. In my mind, this gives the firm a substantial competitive advantage that justifies a high earnings multiple.
What’s more, it is a highly profitable, cash generative business. For the six months to the end of June, the firm booked a pre-tax profit margin of 10%. Synthomer reinvests the bulk of earnings back into the business and is always on the hunt for bolt-on acquisitions to help it break into new markets and reinforce its position in old ones, which should ensure that the group stays at the top of its game for many years to come.
That’s why I believe this FTSE 250 growth stock is well worth your further research time.
