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Just Eat plc isn’t the only ‘expensive’ stock I’d buy today

Just Eat (LSE: JE) continues to go from strength to strength. International markets now account for 43% of group revenue compared with 26% three years ago. And having rapidly expanded overseas, it’s now a leading global marketplace for online food delivery, connecting 19m customers to over 75,000 restaurants.

As well as providing orders through its platform to its restaurant partners, the company is using its might to offer them a growing range of wholesale deals on such things as food, soft drinks, wifi and energy and water utilities. It’s becoming an indispensable partner to restaurants.

FTSE 100 beckons

It’s over a year since I last wrote about Just Eat. The shares were trading at what was then an all-time high of 500p. The forward price-to-earnings (P/E) ratio was 45, which I noted was expensive but I reckoned a cheap price-to-earnings growth (PEG) ratio of 0.7 made the stock an attractive buy.

Today, the shares are trading at around 720p but the forward P/E is now a little lower at 43, although the PEG has moved above the fair-value marker of one at 1.2. However, with the current year nearing its end, I look ahead to the metrics for 2018. The P/E is 31 and the PEG is 0.8. A maiden dividend is also expected.

The cheap PEG, a balance sheet that boasts net cash of £177m and the fact that this £4.9bn FTSE 250 firm could soon be promoted to the FTSE 100 persuade me that the stock remains an attractive buy.

Pricey at first sight

Another company I rate as an attractive buy, despite it appearing pricey at first sight, is Photo-Me International (LSE: PHTM), which released a trading update ahead of its AGM today. The group has a 30 April financial year-end and said revenue growth of 11.2% in the first five months of the current year was consistent with management’s full-year expectations. The shares dipped early this morning but have recovered to trade 2% up on yesterday’s close at 174p.

Photo-Me has delivered four consecutive years of earnings growth in the 15% to 20% region but the City consensus is for this to decelerate to mid-single digits going forward. As such, a forecast P/E of near to 18 looks expensive, not to mention a PEG of 3.8.

A lot to smile about

I see scope for Photo-Me, whose core businesses are photo identification, laundry and digital printing kiosks, to exceed expectations. For example, there’s potential for earnings-enhancing, bolt-on acquisitions in the laundry division, supported by the group’s £39m-strong net cash position.

However, even if it were only to deliver the City consensus 5% earnings growth, this is a highly cash-generative business with a prospective 4.8% dividend yield and a progressive dividend policy. As such, I reckon the P/E of 18 is sustainable, which would support an annual total return for shareholders of about 10%.

The fact that the company is also widely diversified geographically — half its revenue comes from continental Europe and a quarter each from Asia and the UK & Ireland — only adds to my belief that this stock is an attractive one to own.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Just Eat. 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.