ARM (LSE: ARM) and Berkeley Group (LSE: BKG) are two very different stocks operating in extremely different sectors, but they have one thing in common. At some point over the last few years, their share prices have doubled. In fact, the two companies have seen their share prices rise by 290% and 320% respectively during the last five years and, looking ahead, there is scope for both of them to at least double in future.
Meanwhile, online takeaway ordering service, Just Eat (LSE: JE), has only been listed for little over a year and has already been up by as much as 68%. Looking ahead, it also has scope to double from its present share price but, crucially, will it be the first of the three companies to do so?
Clearly, only companies with stunning growth prospects are likely to see their share price double. Certainly, high-yield, stable companies may well offer excellent returns compared to other assets, but if you are seeking a 100%+ return then a growing bottom line is a prerequisite.
On this front, ARM is not set to disappoint. In fact, it is forecast to increase its earnings per share by 73% in the current year, followed by further growth of 20% next year. This means that in 2016, ARM’s net profit is expected to be 108% higher than it was last year and, as such, if it maintains its current rating of 62.3 then its shares should, in theory, double over the next couple of years.
Meanwhile, Berkeley has much lower growth prospects, with its earnings set to fall by 9% this year, followed by growth of 44% next year. However, unlike ARM, Berkeley has a very low price to earnings (P/E) ratio of just 12.5 and so there is scope for an upward rerating over the medium term. In fact, if Berkeley’s rating were to rise to 19 and it meets its profit expectations, then it too could see its share price double over the next two years.
And, not to be outdone, Just Eat is set to benefit from the continued shift towards online ordering of takeaways, with its net profit due to increase by 114% over the next two years. As with ARM, it has a relatively high P/E ratio of 98.3 and if it can maintain this rating then its shares should, in theory, double so long as it is able to meet current expectations.
Clearly, all three stocks could realistically see their share prices double over the medium to long term. In terms of which one is most likely, though, Berkeley Group appears to be the obvious choice. That’s because it is not reliant upon maintaining a high P/E ratio in order to see its share price double, while ARM and Just Eat both are. In fact, if ARM or Just Eat’s earnings figures were to disappoint, then investor sentiment could quickly turn and, even if their optimistic guidance is met, then there are no guarantees that investors will continue to rate them so highly.
On the other hand, Berkeley Group’s P/E ratio could easily move to 19 over the next few years, with growth of 44% in its earnings still equating to a price to earnings growth (PEG) ratio of 0.4. This would still represent excellent value for money, as well as meaning that Berkeley’s share price is around twice its current price level. As such, it appears to be the stock most likely of the three to double first.
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Peter Stephens owns shares of Berkeley Group Holdings. The Motley Fool UK has recommended ARM Holdings and Berkeley Group Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.