3 stocks defying the high street gloom. Would I buy, sell or hold?

Paul Summers picks out a selection of stocks bucking the trend on the high street.

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The popularity of online shopping has become a nightmare for listed companies with a high street/retail park presence. Notwithstanding this, there have been a few exceptions.

Today, I’m taking a closer look at three stocks that have seen their share prices soar over the last year and asking whether it might be time for Foolish investors like me to bank profits, buy more or simply do nothing.

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Top performer

Homewares seller and FTSE 250 member Dunelm (LSE: DNLM) has been one of the big winners on the UK-focused index in recent times, let alone within the retail sector. The shares are now 59% higher in value than they were one year ago and January’s trading update suggests this could continue, at least in the short term.

Total like-for-like sales moved 5% higher over the 13 weeks to 28 December, bringing the percentage to 5.6%  for the first half of the financial year. Gross margin also improved as a result of the company’s decision to shun Black Friday and “additional pre-Christmas discounting“.

The only drawback to this good news is that the shares now trade on almost 21 times earnings for the current financial year. That’s fairly pricey for any retailer in the current climate, but particularly one that, as far as I can see, doesn’t have much of an economic moat. 

Personally, I’d be tempted to bank at least some profit in the near future.

Comfortably ahead

Much to my satisfaction, another company bucking the trend has been pawnbroker, gold buyer, foreign exchange specialist and jewellery retailer Ramsdens (LSE: RFX). Shares in the Middlesbrough-based business — the largest holding in my own ISA portfolio — are up 54% from this time last year. Again, I suspect there could be more gains to come. 

Like Dunelm, the company stated that it too had seen excellent trading over Christmas, so much so that full-year pre-tax profit was now expected to be “comfortably ahead of market expectations“.

Forecast earnings per share growth of 26% in the year to the end of March leaves Ramsdens on a P/E of almost 12. That kind of valuation, combined with the fact that its market capitalisation is still under £80m (compared to rival H&T’s near-£150m), leads me to think that the shares could still be worth having. The 3.1% yield, easily covered by profits, is another positive.

Confirmation bias aside, I therefore rate Ramsdens as a ‘buy’, even more so if the gold price continues to head higher.

Hot stock

To say that FTSE 250 baker Greggs (LSE: GRG) is doing well is something of an understatement. Thanks in part to the great marketing success of its vegan sausage roll (and now steak bake), the shares have increased 56% in value over the last 12 months as trading has exceeded expectations.

Are the shares now too expensive? Possibly. A forecast P/E of 26 for 2020 does seem rather extreme for a company that is potentially reaching saturation point on the high street.

That said, I’d be far more comfortable devoting a decent amount of my capital to Greggs — with its strong brand, solid balance sheet, decent returns on capital and fairly predictable earnings — than I would the vast majority of listed companies that feature in towns and city centres.

It’s a ‘hold’ for now, but I certainly plan on gobbling up more of the stock should an opportunity present itself over the next few months.

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Paul Summers owns shares of Greggs and Ramsdens Holdings. The Motley Fool UK has no position in any of the shares mentioned. 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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