Too late to buy this stock that’s turned £1,000 into £20,000?

Could this stock continue to deliver extraordinary profits for investors today?

| 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.

It’s often hard to consider buying a stock that’s already delivered extraordinary profits for its shareholders. Have I missed the boat? Are the shares poised for a massive retrace? Such questions tend to figure prominently in our thoughts.

GB Group (LSE: GBG) has turned a £1,000 investment into £20,000 over the last 10 years, its shares having soared from 22p to 440p. Add in dividends and the annualised 10-year total return is a breathtaking 35%. To put that into context, the FTSE 100 return is less than 6%.

Impressive growth

I’m going to put nagging questions like “Have I missed the boat?” out of my mind and consider GB’s valuation and prospects, if I were to buy the stock today. Now is a good time to put it under the microscope, because it released its half-year results this morning.

The last full-year results were pretty impressive, with revenue growth of 19% (including organic growth of 12%) and a 24% increase in earnings per share (EPS). But today’s numbers for the six months to 30 September are even more impressive. Revenue was up 40% (18% organic) and EPS soared 69%. The shares are little changed on the day but to be fair, the company had already signposted the revenue growth in a trading update last month.

Fighting fraud and cybercrime

Looking to the full-year, the City consensus ahead of today’s results was for EPS of 12p, giving a price-to-earnings (P/E) ratio of over 36. On forecasts of a rise in EPS to 13.7p next year, the P/E falls to 32 or so but this is still a relatively high rating.

However, as a global specialist in identity data intelligence, operating in a world increasingly concerned with fraud and cybercrime, GB’s prospects are underpinned by a great structural growth tailwind. Furthermore, in addition to organic growth, management has stated: “We will continue to seek acquisitions that will enable us to expand our capabilities, datasets and geographic presence.”

In light of the sector’s structural growth and GB’s likely acquisitions, which of course don’t figure in current EPS forecasts, I’m inclined to rate the stock a ‘buy’.

Making dough

Domino’s Pizza (LSE: DOM) may not have delivered quite as extraordinary a profit for investors as GB, but it’s still been pretty impressive. Its annualised 10-year total return is over 18%. So, in excess of three times that of the FTSE 100.

At 322p, Domino’s shares are a good way below their last year’s high near 400p. The current-year consensus EPS forecast of 14.4p gives a P/E of 22.4, which falls to 20.6 next year on forecasts of a rise in EPS to 15.6p.

Domino’s near-term earnings growth isn’t as strong as GB’s, partly because the pizza group is sacrificing some margin to give customers a better deal in the current uncertain UK consumer environment. The company actually reported encouraging trading in this environment last month, and with it also having revenues from international operations, I think the fall in the shares from last year’s high has presented a good opportunity to buy a slice of the business.

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.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Domino's Pizza. 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

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

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

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

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

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »