The Motley Fool

Forget Boohoo, this big-brand growth and dividend leader is selling cheap

Image source: Getty Images.

High-flying online fashion retail firm Boohoo Group (LSE: BOO) trades on a mighty historic price-to-earnings (P/E) ratio close to 90. However, City analysts’ forecasts of double-digit increases in earnings over the next couple of years bring the forward P/E rating down to a ‘mere’ 49 or so for the trading period to February 2020.

High stakes

At a valuation like that, the stakes are high, and any slip in earnings will bring a sharp share-price reversal. We’ve seen it many times. Expectations are everything with fast-growing firms. Miss the earnings projection and it’s ‘look out below!’ Yet Boohoo is growing like mad and there’s no sign of any weakness whatsoever in the firm’s financial performance. Maybe it’s worth its high valuation and will go on to reward its investors handsomely in the years to come.

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...

I think there probably is a fair bit of upside left for investors in Boohoo, but you’ll need a strong constitution to ‘hold’. However, if the valuation puts you off you may wish to consider Ted Baker (LSE: TED) instead, which owns and operates what it describes as a “global lifestyle brand.”

The firm has grown from a single shirt specialist store in Glasgow and now sells clothes for men, women and children along with fragrance and accessories. Today, there are around 201 stores or concessions or outlets in Britain, 116 in Europe, 129 in North America, 89 in the Middle East, Asia and Africa regions, and nine in Australasia. There’s no sign that the expansion programme is running out of steam either. In fact, the opposite is true.

Expansion on track

Today’s interim results revealed that in the first half of the trading year the firm opened two new stores in the UK, three in the US, two in Germany and one in France, as well as gaining concessions with “leading department stores” in the UK, Europe and North America and establishing licensees in India, Kazakhstan, Malaysia, Mexico, Singapore, Taiwan and Ukraine. Despite such progress, the shares have plunged around 10% today as I write, so why is that?

The figures are quite good. Revenue rose 3.5% compared to the equivalent period last year and adjusted earnings per share moved 5% higher. The directors even expressed their vote of confidence in the outlook by pushing up the interim dividend by 7.8%. The ‘problem’ as I see it is in the outlook statement. Chief executive Ray Kelvin CBE said in the report that he expects the second half of the year to “remain challenging” because of “external factors.”

However, conditions have been challenging in the retail sector for some time, but Ted Baker posted a 1.8% fall in unadjusted earnings per share today, and I reckon the stock market is in an unforgiving mood right now. Nevertheless, the growth story remains on course, and I see share price weakness now as an opportunity to grab a piece of the long-term potential on better terms. With the share price close to 2,076p, the forward P/E for the trading year to January 2020 sits just under 13 and the forward dividend yield is a little below 3.7%. Meanwhile, City analysts expect earnings to grow at around 10% a year. I think the stock is attractive.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo group and Ted Baker. 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.