Two growth stocks I’m eyeing up are retail stalwarts Dunelm (LSE: DNLM) and Marks and Spencer Group (LSE: MKS).
Here’s why I’d be willing to buy some shares when I can.
Dunelm
I must confess I own many Dunelm home products. I even manage to drag my husband there a fair bit, which is an achievement in itself!
The shares are up 6% over a 12-month period, from 1,061p at this time last year, to current levels of 1,127p. However, in 2023 alone, they rose by 23% in the calendar year.
The obvious risk that could hurt Dunelm in the short to medium-term is continued volatility. The current cost-of-living crisis means consumers are more concerned with paying higher mortgages, as well as rising food and energy bills. Decorating may not be high on the priority list for many. This could have an impact on the firm’s performance and return levels.
According to analysts at Peel Hunt, the share price could reach 1,375p. This price target is linked to the analysts forecasting excellent performance in the future. Forecasts show 5%-6% annual growth in pre-tax profit for the next three years. However, I’m conscious forecasts don’t always come to fruition.
Finally, the shares look decent value for money on a price-to-earnings ratio of just 14. Plus, a dividend yield of over 6% is enticing. However, it’s worth remembering dividends aren’t guaranteed. Furthermore, the business has a hit-and-miss track record of consistent payouts.
Marks and Spencer
The growth aspect for the retail giant stems from a transformation strategy it has been implementing recently. I reckon it’s already paying off and could continue to do so.
Before we dive into that, the shares have been on a nice upward trajectory over the past 12 months, up 63%. At this time last year, they were trading for 163p, compared to current levels of 267p.
So going back to the transformation strategy, Marks and Spencer has been investing heavily into digital channels, including e-commerce. This could be savvy for long-term growth, due to changing shopping habits. Furthermore, the firm has looked to boost its store presence. Furthermore, it’s refined its ageing infrastructure to boost market presence as well performance.
Recent performance has shown the business is on the up, if you ask me. The firm’s half-year update, released in November, showed profit rose by 84% compared to the same period last year. A Christmas update, released in January, showed that group sales across all its segments rose by an impressive 7.2%.
It’s worth noting the threat of continued economic pressures could hurt performance, especially as Marks and Spencer is seen as a premium brand. Plus, the rise of supermarket disruptors, as well as discount retailers, could chip away at its market share. This could also hurt performance and returns.
Overall, the shares look decent value for money to me, on a price-to-earnings growth ratio of 12 at present.
