Could Dunelm Group plc Be A Better Buy Than ASOS plc, Sports Direct International Plc Or Next plc?

Do strong recent results make Dunelm Group plc (LON: DNLM) more appealing than ASOS plc (LON: ASC), Sports Direct International Plc (LON: SPD) or Next plc (LON: NXT)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

FTSE100Investors in Dunelm (LSE: DNLM) have had a tough time in recent months, with shares in the homeware retailer sliding by 20% in the last three months. However, the company continues to perform well and this week released an upbeat set of fourth-quarter results that showed a pickup in sales in the final quarter of its financial year, which contributed to an increase in net profit of 7% for the year.

Looking Ahead

Indeed, Dunelm has weathered the recession extremely well. The company has posted five consecutive years of earnings per share (EPS) growth, with the bottom line increasing by an average of 20% per annum over the last five years. Furthermore, Dunelm is forecast to grow EPS by 14% next year, which is roughly twice the growth rate of a typical FTSE 100 stock. Clearly, such growth rates do not come cheap, with Dunelm trading on a price to earnings (P/E) ratio of 16.2. However, when combined with the strong growth rate, a price to earnings growth (PEG) ratio of 1.2 seems relatively attractive.

The Competition

Of course, the general retail sector contains other options for investors. For example, Sports Direct (LSE: SPD) continues to post highly attractive growth numbers. The company is forecast to deliver a 26% growth in EPS this year and an increase of 15% next year as it continues to seek international expansion. As with Dunelm, a relatively high P/E of 19.2 is countered by great growth prospects, meaning a PEG ratio of less than 1 is highly appealing.

Next (LSE: NXT) and ASOS (LSE: ASC) (NASDAQOTH: ASOMF) could also perform well in future. Next, for example, could prove to be a great investment as it offers strong growth prospects as well as an above-average yield. Indeed, EPS is forecast to grow by 11% this year, while special dividends are set to mean a yield of 5.3% at current prices.

Meanwhile, ASOS has disappointed this year, with shares in the online fashion retailer falling by over 50%. However, even though the current year is set to be highly challenging (with profits due to fall by 16%), ASOS is expected to return to high levels of growth next year when EPS is forecast to increase by 40%. Certainly, there could be further volatility in the share price over the short to medium term, but it still could be a strong performer in the long run as it focuses on expansion into new markets such as China.

Returning To Dunelm

So, there appears to be a considerable amount of potential among the four companies, with Dunelm offering an appealing mix of growth and value at current price levels. Indeed, it could prove to be the major winner, since its products tend to be more discretionary rather than necessity. As such, further improvements in the macroeconomic outlook for the UK could benefit it to a greater extent than its peers.

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.

Peter does not own any of the above shares. The Motley Fool owns shares in ASOS.

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »