Should You Buy Booker Group Plc After Recent Declines?

Booker Group (LSE: BOK) has slumped more than 6% today, after it was revealed that Metro AG will sell its stake in Britain’s biggest cash-and-carry wholesaler. Metro owns 9% of Booker, a stake acquired when it sold its own loss making cash-and-carry operations to Booker for £140m. 

However, Metro is only selling its stake to pay down debt and reduce capital, as of yet the German chain has not indicated that it is displeased with the British retailer’s performance. The two parties will continue their strategic partnership. 

Nevertheless, today’s declines have pushed Booker’s share price to within inches of its 52-week low. Booker’s share price has fallen more than 22% year to date. But with Booker’s underlying business still going strong, it could be time for investors to make use of recent declines and buy in.

Robust growth stock exchange

As a cash-and-carry chain, Booker has benefited from the UK’s recent drive towards discount buying. Indeed, during the past five years the company’s revenues have expanded 38%. In addition, margin growth has driven pre-tax profit higher by 114% over the same period.

Moreover, the City does not expect this growth to stop any time soon. For example, City analysts have pencilled in a further 28% growth in pre-tax profit over the next two years. Sales are expected to rise 6.4% over the same period. 

Unfortunately, with the rest of the UK’s grocery sector in the doldrums, investors are willing to pay a premium to get their hands on Booker’s shares as the company continues to grow. Even after recent declines, Booker still trades at a forward P/E of 21.5, a valuation significantly higher than that of the company’s peers. 

Booker’s shares do support a dividend yield of 2.4% at present levels, offering some relief from the high valuation. This is excluding special dividend payouts, Booker returned an additional 3.50p per share to investors earlier this year as part of the group’s commitment to investors. City analysts expect the yield to hit 3% next year. The payout is covered 1.8 times by earnings per share.

Time to buy?

There’s no doubt that with sales still expanding, Booker is an attractive proposition. However, even after recent declines, the company’s shares may still be too expensive for some investors. On the other hand, growth investors could find Booker’s prospects too good to pass up. 

Still, for those who believe that Booker is too expensive, there are other opportunities out there. You see the key when searching for growth stocks is looking under the radar. You want to get on board while the company is still an unknown quantity, that way you won’t need to pay a premium in order to benefit from the company’s growth. 

Analysts here at the Motley Fool have identified a share that we believe has the potential to nearly double profits within the next four years. So, if you're a keen growth investor looking for ideas, download this exclusive report entitled "The Motley Fool's Top Growth Stock For 2014".

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended shares in Booker Group. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.