Is this battered growth stock now an unmissable buy?

The reaction to today’s interim results suggests recent falls have been a temporary blip for this former market darling.

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There’s been no shortage of stock market casualties over the first three-quarters of 2019. Perhaps one of the most surprising has been IRN-BRU owner AG Barr (LSE: BAG). 

The company has welcomed a rush of investors over the last few years, attracted by the fat margins and high returns on capital it generated. Yes, AG Barr exuded quality. Until, that is, earlier this year when management warned on profits following its decision to switch focus to increasing prices rather than volume.  

Having lost a third of its value, it’s only natural today’s interim results would attract attention. So, was it a temporary blip, or a sign of tough times ahead? Fortunately for holders, it looks like the former.

Based on trading for the six months to 27 July, the company believes it “remains on course” to meet its revised predictions for the full year, despite ongoing economic uncertainty. That’s not to say that these results were sparkling.

Revenue and pre-tax profit were both down by a little under 11% and 24%, respectively, compared to the same period in 2018. Despite taking steps to address previously-identified issues with its Rockstar and Rubicon ranges, the company also said the benefits “will not be felt until later in the second half of the financial year.” On a more positive note, there’s been an encouraging response to the launch of its new IRN-BRU Energy drink. The Funkin cocktail range continues to perform well too.  

AG Barr’s shares are up almost 6% this morning, suggesting investors are willing to forget the last few months. I can’t blame them. After all, the mid-cap still has a strong balance sheet, ‘sticky’ brands and trading should remain resilient in the event of a recession. A forecast dividend yield of 2.6% isn’t massive but can be considered adequate compensation while things get back on track.

So while a forecast price-to-earnings ratio of 22 certainly doesn’t make this stock ‘unmissable’, I remain bullish on AG Barr’s ability to reward investors over the medium-to-long term.

Ahead of expectations

Another example of a company that experienced a big drop in its share price not too long ago would be chocolatier Hotel Chocolat (LSE: HOTC). The stock tumbled from a high of around 400p back in June 2018 to just above the 250p mark only six months later. Since then however, it’s rebounded strongly. 

Today’s results for the full-year to the end of June go some way to justifying this bounce with the company logging a 14% rise in revenue (to £132.5m) and an 11% increase in pre-tax profit to (£14.1m). According to CEO and co-founder Angus Thirlwell, the latter was “slightly ahead of expectations.

Over the period, the company opened 14 stores in the UK and ROI, two in the US and two in Japan, with a further five international sites scheduled to open over the next six months. More than 900,000 people have now signed up to its VIPMe loyalty scheme.

The only problem with all this good news is that the valuation — at 34 times forecast FY20 earnings even before markets opened this morning — looks rather frothy. Although further growth is expected, I’m not sure I’d be buying today.

Should markets dip again in the run-up to Halloween (our official EU departure date), Hotel Chocolat might just be worth biting into. 

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 assessed. Consider taking independent financial advice.

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.

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