The last six months have been stunning for investors in Wincanton (LSE: WIN). That’s because shares in the supply chain solutions company have rocketed by 23% since the start of May, with positive news flow helping sentiment to rise further.
Waitrose
The latest piece of encouraging news flow occurred just this week, when Waitrose decided to extend its contract to store and distribute wine with Wincanton. A key reason for this decision was apparently the flexibility that Wincanton provides, with its ‘pay as you go’ model allowing retailers to increase and decrease their space at short notice.
Track Record
Indeed, innovation has helped Wincanton to remain profitable in four of the last five years. Certainly, cost pressures in the wider logistics space have meant that profit has fallen heavily during the period. With many of its customers being retailers, Wincanton has indirectly been affected by the effects of a cost of living ‘crisis’ and subsequent supermarket price war.
Growth Potential
Despite cost pressures being ongoing, Wincanton was able to increase its bottom line by 25% last year. This is a strong performance and, furthermore, the company is expected to increase net profit by a further 10% next year. Of course, an improving UK economy should aid Wincanton — especially if wage growth begins to outstrip inflation, as this could mean that retailers such as J Sainsbury are no longer seeking to cut costs to quite the same extent as in recent years.
Valuation
Despite its share price rising significantly during the course of 2014, Wincanton still offers great value for money. For example, it trades on a price to earnings (P/E) ratio of just 8.8, which is very low when you consider that it has a relatively consistent track record of profitability.
Furthermore, when its low rating is combined with its strong growth potential, it equates to a price to earnings growth (PEG) ratio of just 0.9. This shows that, even though Wincanton is now trading at near-four year high, its share price could move higher.
Looking Ahead
So, while share price strength has been a feature of 2014 for Wincanton, it doesn’t necessarily mean that shares in the company are due a pullback. With strong growth potential, an attractive valuation, improving sector outlook and relatively consistent track record, now could be an opportune moment for less risk averse investors to buy Wincanton.
