Can this new growth stock help you to a million pound portfolio?

This tasty new stock continues to perform for early investors but is it too expensive?

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If you think all growth-focused stocks have suffered over the last couple of months, think again. Cake retailer Cake Box (LSE: CBOX) is a shining example of a highly-rated company that’s managed to get through the recent market sell-off relatively unscathed. Not only this, it’s also bucked the trend of performing poorly since listing — something that other, higher-profile entrants have struggled to do.

Based on today’s maiden half-year results (and the market’s reaction to them), the company is only likely to get more popular.

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Sweet profits

Revenue soared 44% to £8.3m over the six months to the end of September, boosted by the opening of 15 new franchise stores (bringing its total estate to 101) and the launch of new product ranges. Total turnover rose 29% to £14.1m with online sales rocketing 86% to £1.99m. A dip in like-for like sales growth was the only sour note. 

Of course, making the transition to a public company doesn’t come cheap. Once the £599,000 costs of listing were taken into account, however, adjusted pre-tax profit jumped 34% to £1.97m. A slight improvement to gross margin was accompanied by a rise in the company’s cash position to £2.4m. 

While not a stock that’s likely to get income investors salivating, a 17% increase to the interim dividend was another positive and adds substance to CEO Sukh Chamdal’s bullish outlook (having stated that the first eight weeks of trading in H2 had been “encouraging“).

The only trouble is that a lot of good news already looks priced in. Before this morning (and thanks to a 29% rise in value since listing), shares in Cake Box would have set you back the equivalent of 25 times forecast full-year earnings. That’s certainly not cheap. The 2% rise seen today makes them dearer still.

Since one of the keys to building a million pound portfolio is to never overpay for a stock, regardless of its quality, I’d be inclined to wait for traders to bank some profit before building a position.

A tempting alternative?

If Cake Box doesn’t appeal, there are other — albeit even more expensive — confectionery-focused growth stocks on the market that might. One of these is chocolatier and retailer Hotel Chocolat (LSE: HOTC)Like its industry peer, the small-cap has been performing well.

With all channels achieving “growth and cost efficiency“, revenue improved 11% to a little over £116m in the year to the start of July with pre-tax profit “slightly ahead of expectations” at £12.7m – a rise of 13%.

Like Cake Box, Hotel Chocolat is also continuing to expand with a total of 15 new stores in the UK and Republic of Ireland opened over the period. Perhaps most encouragingly, CEO Angus Thirlwell recently said that he was “increasingly confident” about the company’s growth prospects overseas while adopting “a cautious ‘test, learn, grow‘ approach” with regard to its new ventures in Scandinavia, the US and Japan. 

As mentioned, however, Hotel Chocolat’s shares still are looking increasingly frothy. A valuation of 32 times earnings for a company that’s heavily dependent on the run-up to Christmas is too much, in my opinion, especially as data from Black Friday hinted that people are cutting back on spending this year.

Since no stock is worth buying at any price. I’d wait to see how the company fares over the festive period before taking a bite.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Hotel Chocolat. 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.

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 considered, so you should consider taking independent financial advice.

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