August is a month most investors in UK stocks will probably want to forget. Both the FTSE 100 index and the more domestically-focused FTSE 250 are down almost 3% at the time of writing.
Look a little deeper, however, and some market participants have a lot to smile about.
Domino’s Pizza (LSE: DOM) shares have climbed 15% in the last month. Go back a full 12 months and the price is now 67% higher!
The most recent surge is down to the company reporting higher orders and sales over the first six months of 2023. Guidance on full-year underlying core profit was also raised to between £132m and £138m. An announcement that Domino’s would be spending £70m in buying back its own stock compounded investors’ joy.
Obviously, the ongoing cost-of-living crisis remains a headwind. A forecast price-to-earnings (P/E) ratio of 22 also means the shares are no longer cheap and way above the five-year average of 14. That suggests the price might be up to date with events.
Still, I’ve always liked Domino’s for the high margins and returns on capital employed it consistently posts. So, I’m keeping it on my watchlist in case we get a more general sell-off and I can pick them up at a lower price.
Promotional product provider 4imprint (LSE: FOUR) also performed admirably in August.
Annoyingly, I only looked at the stock at the end of July and liked what I saw. Had I invested, I’d be looking at a gain of 14% in the first month of ownership.
Again, here we have a business that’s doing very well. Profit before tax soared 50% to $66m in the 26 weeks to the start of July, pushing management to lift the interim dividend by 54%!
One fly in the ointment I was wary of previously was the valuation. Today, this stands at a P/E of almost 24. That’s even higher than its fast-food FTSE 250 peer.
Now, if 4imprint can continue growing at a fair clip then buying now can still be justified. However, the risk of a big fall if it even slightly misses targets is arguably rising.
As such, I’m increasingly viewing this as a stock to pile into during a market meltdown.
Hill & Smith
A third stock that seems to be on a great run of form is infrastructure specialist Hill & Smith (LSE: HILS). In the last year, the shares have rocketed 72%. A 13% rise was delivered in August alone.
A quick look at the recent, record half-year results explains why. At £57.2m, underlying pre-tax profit was 42% higher than over the same period in the previous year. Trading in the US was particularly strong.
In fact, things are going so well that management believes the full-year outlook is now “modestly ahead” of previous market expectations.
Once again, the momentum over the last month has impacted the valuation. The stock now trades on a P/E of 18 — quite dear for a company in this sector. On the flip side, it is in line with Hill & Smith’s average valuation over five years. So, perhaps the share price stands a better chance of moving higher than the other two?
Even if it didn’t, a secure-looking 2.2% dividend yield might provide some comfort.