As retail sales fall, should you buy growth stars Boohoo.Com plc, Hotel Chocolat Group plc and Supergroup plc?

UK retail sales fell by 0.5% on a like-for-like basis in June, according to new figures released by the British Retail Consortium this morning.

Sales appear to have slowed during the final week of June, which followed the EU referendum. What we don’t yet know is whether they’ll start rising again once the initial reaction to the Brexit vote starts to fade.

However, one trend that does seem clear is that fast-moving young firms such as Boohoo.Com (LSE: BOO), Hotel Chocolat Group (LSE: HOTC) and Supergroup (LSE: SGP) are stealing sales from older, larger rivals.

Should we focus our cash on these growth stars?

Sweet figures lift shares

Shares in upmarket chocolatier Hotel Chocolat edged higher today after the group said sales rose by 12% to £92.6m in the year ending 26 June. Internet sales rose by 20% over the same period.

It’s the group’s first update since its flotation on 10 May, so making a good impression was important. There are no broker forecasts for Hotel Chocolat yet, but my calculations suggest this sales figure could imply profits of about £7.4m.

If I’m right, this would put Hotel Chocolat on a P/E of about 26. That’s ambitious, but not impossible to justify. The group floated with almost no debt. Last year’s figures suggest that cash generation is strong.

At 179p, Hotel Chocolat now trades about 5% below its IPO price of 190p. The shares could easily rise further if growth continues, but I’d rather see a full set of accounts before deciding whether to buy.

A proven winner, but pricey

Online fashion retailer has already proven its growth credentials. The group’s sales rose by 41% during the three months to 31 May, compared to the same period last year.

Last year’s results showed that Boohoo’s sales growth is translating into real cash profits. Earnings rose by 34% to 1.1p per share, while net cash increased to £57.7m.

The only problem is that Boohoo shares now trade on 41 times 2016/17 forecast earnings. That’s a demanding multiple even for such a strong performer. Growth investors who use Jim Slater’s PEG ratio (price/earnings growth) may be interested to know that Boohoo’s PEG ratio has risen to 1.8. In my view that’s too high — this is a quality stock, but I’d wait for the next dip to buy more.

Undervalued growth?

After a difficult few years, profits appear to be growing strongly at Superdry owner Supergroup.

Like-for-like sales rose by 11.3% last year while total sales rose by 21.1% to £589.5m. Earnings per share are expected to have risen by 17% to 69.2p, putting Supergroup shares on a P/E of 19.5.

Supergroup is expected to pay a dividend of 20.6p per share for last year, giving a forecast yield of 1.5% — although for long-term shareholders, the yield on cost could be much higher.

Supergroup’s share price is unchanged from a year ago but the outlook has improved. Earnings are expected to rise by a further 15% in the current year, giving a modest forecast P/E of 17.2.

Now could be a good time to take a closer look.

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