This FTSE 100 stock could help you retire a millionaire

Roland Head looks at the upside potential of two consumer stocks, including a FTSE 100 (INDEXFTSE:UKX) brand.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I want to look at two growth stocks with outstanding long-term records.

The first of these is a FTSE 250 business whose shares have risen by 163% over the last five years. The company in question is cinema operator Cineworld Group (LSE: CINE).

This group’s earnings per share have doubled from 17p in 2012 to around 35p for the last 12 months. The dividend has also risen strongly, climbing from 10.6p to 19.8p per share over the same period.

Today’s trading update suggests to me that these gains should continue. Now that its UK network of cinemas is fairly mature, the firm is expanding into Europe, in countries including Poland, Hungary and the Czech Republic.

Indications so far suggest this is working well. The group’s total revenue rose by 10.6% during the year to 19 November, thanks mainly to an 18.2% increase in revenue from the group’s European operations.

A strong outlook

The company says that the film release schedule for the rest of the year includes titles such as Star Wars: The Last Jedi, which are expected to perform well. Management is confident that full-year profits should be in line with expectations.

That puts the stock on a 2017 forecast P/E of 16.7, with a prospective dividend yield of 3.3%. In my view, this seems a fair price to pay for a company with such a strong and consistent track record of growth. Although any slowdown in consumer spending is a risk, I’d continue holding and would be happy to buy at current levels.

Cheap luxury?

Shares of upmarket FTSE 100 fashion group Burberry Group (LSE: BRBY) were hit by a 12% sell-off earlier in November. Although the company’s half-year results were fairly solid, with sales up 9% and operating profit up 24%, investors weren’t impressed by news of a strategy shift.

Chief executive Mario Gobbetti intends to spend £150m-£160m each year until 2020 to “sharpen our brand positioning” and move more firmly into the luxury end of the market. New ranges such as leathergoods will be added and the group will cut back on sales through wholesalers that could dilute the strength of its luxury brand.

Focus on the numbers

I’m not in a position to judge the appeal of Burberry’s products, except that to note that this company has been trading successfully since 1856. This kind of longevity is usually attractive, in my opinion. It shows that the company has survived difficult periods before and continued to do well.

The group’s finances also attract me. Although the shares trade on a forecast P/E of 22, I think this valuation may be justified by Burberry’s financial performance.

The group’s return on capital employed was 21% last year, well above the threshold of 15% I use to help identify highly profitable companies.

Cash generation is also very strong. Free cash flow during the first half rose to £171m, from £75m the previous year. The group ended the first half with net cash of £654m. Much of this will be returned to shareholders via a £350m buyback over the next year.

Although the dividend yield is modest at just 2%, I think this could rise significantly over time. At current levels, I see Burberry as a good buy-and-hold stock.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry. 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »