Can Character Group PLC (143%), Betfair Group plc (130%) & Ted Baker plc (67%) Keep Climbing Next Year?

When you see a stock like Character Group (LSE: CCT) climb by 143% in just 12 months, to 500p, you’ve got to take notice — especially when, even after such a rise, we’re still looking at a forecast P/E of only 12. The City’s expectations for the year just ended in August 2015 are likely to be met too, as the company has confirmed that it “expects to deliver a year end result in line with market expectations“.

But look back over the longer term and we see a very erratic share price and a chart full of spikes, so what gives? The thing is, Character Group owns a number of toy brands (including Scooby Doo and Fireman Sam), but that can be a very faddish market — one year’s must-have toy is soon past its sell-by date, and there’s no guarantee of a new blockbuster for next year.

It’s hard to guess where Character Group shares will go next, and there are precious few analysts covering the £100m AIM-listed company — eyes peeled for results due the first week of December.

Gambling growing strongly

Online gambling is pretty big business, as a look at Betfair (LSE: BET) clearly shows. The shares are up 130% in a year, to 3,450p, and up nearly 200% in two years. Some of the recent optimism is due to the firm’s planned merger with Paddy Power, as consolidation in the business is becoming the name of the game. Paddy Power has revealed an interim net debt for the first time in years, but the combined company will have a very attractive range of services.

The big problem, though, is valuation. Betfair’s shares are trading on a P/E multiple, based on forecasts for the year ending April 2016, of a pretty massive 40 — and even the 20% EPS growth currently penciled in for 2017 would drop that only as far as 33. That’s a very serious growth valuation, and we’d need to see earnings more than double from today’s levels to get it closer to the FTSE 100 long-term average.

A fashion winner

My third for today is Ted Baker (LSE: TED), whose shares are up 67% in 12 months, to 3,402p — and over five years we’ve seen a five-bagger. But again, we see shares on a seriously high growth valuation and a forward P/E of 35.

Growth has been going well so far, with the first half of the current year bringing in a 25% rise in revenues, providing a 23% boost to adjusted EPS and allowing the company to lift its first-half dividend by 17%. The top-end fashion label is attracting an increasing following from an growing pool of rising wealth around the world, with new licensee stores opened in Azerbaijan, Dubai, Qatar, Saudi Arabia, Taiwan and Thailand during the half.

The risks are that fashion is fickle, and that there might be too much growth expectation built into the current share price — we have a PEG ratio here of around 2, which is more than twice the maximum that growth-seekers tend to look for.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Betfair 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.