The Motley Fool

A growth stock for the long term with +25% pa returns

If you had £1,000 and invested this sum at a rate of 5% per annum, after 10 years your initial investment would be worth £1,628. However, if you take the same £1,000 and invest it at a rate of 25% per annum, at the end of the decade, the initial investment would be worth £9,313 a total return of 831%. If given a chance, you would choose the investment that achieves the return of 25% per year. Unfortunately, such investments are almost impossible to find, although they are out there.

DS Smith (LSE: SMDS) is one such rare bird. Over the past five years, shares in the company have returned 28.5% per annum including dividends giving a total return of 250%. For some comparison, over the same period, the FTSE 100 has only returned 33.3%.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

And today shares in DS are charging higher after the company published its fiscal full year results and announced a game-changing acquisition.

Rapid growth 

According to today’s numbers, for the 12 months to 30 April 2017, DS’s revenue expanded by 18% including currency gains, and at constant currency revenue grew by 6%. Adjusted profit before tax increased 6% year-on-year and adjusted earnings per share rose 19%, including currency fluctuations, to 32.5p. Off the back of this positive performance, management declared a 19% increase in the company’s dividend payout to 15.2p.

Alongside these results, DS also announced today that it is paying £72m to acquire 80% of Interstate Resources, a family-owned integrated packaging and paper producer concentrated on the East Coast of the US. To fund part of the deal DS is undertaking a placing to raise £285m before expenses, which is equal to around 7% of the firm’s current market value. It is believed that the acquisition will be immediately earnings accretive, so it shouldn’t be long before shareholders start to see improved returns.

Shareholders will be rewarded

Based on today’s numbers and acquisition news, it does not look as if DS’s impressive shareholder returns will come to an end any time soon. 

City analysts had been expecting 6% earnings growth for the financial year ending 30 April 2018. As of yet, these figures haven’t been updated to reflect the acquisition news, so it looks as if these forecasts are out of date. 

If we assume earnings growth doubles to 12% next year, the shares look cheap at current prices considering the historical returns. Specifically, if earnings per share hit 35.3p next year, up 12% year-on-year, shares in DS currently trade at a forward P/E of 13.5, around the five-year average. At the same time, the company also supports a dividend yield of 3.4%.

The bottom line

So overall, DS is growing rapidly, and the company should continue to generate impressive returns for shareholders in the years ahead. What’s more, the shares trade at a relatively attractive valuation and support a market average dividend yield. The company’s management has proved that it can generate shareholder returns over the past five years and investors are likely to be disappointed as the company continues on its growth trajectory.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended DS Smith. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.