I tend to stick to tried and tested dividend stocks when looking for the best investments. But this growth stock has me seriously rethinking my plans.
Online-only fashion firm Boohoo (LSE: BOO) posted better than expected sales in a June trading update and has all the hallmarks of a solid buy, in my opinion.
In Q1 2019 its brands PrettyLittleThing and Nasty Gal outdid predictions with hikes of 42% and 153% respectively, the latter more than double expectations. Overall the three months to 31 May saw sales rise briskly in all markets.
The group’s underlying business is strong. Revenue shot up 50% from 2017 to 2018, hitting £579.8m after the previous year’s £294.64m.
This is no passing fancy for a small cap wannabe, either. At £2.7bn Boohoo has the fifth-largest market cap on the FTSE AIM 100.
Other key fundamentals look good, too.
Earnings per share almost quadrupled in the last four years from 0.75p to 2.78p. Pre-tax profits rocketed from £11.67m to £43.31m across the same period. A price-to-earnings ratio of 54.4 puts Boohoo squarely in pole position for my next buy.
By comparison, bricks and mortar retail offerings look horribly dated. The Debenhams delisting debacle left investors badly burned, and businesses with a significant physical presence are shipping cash like there’s no tomorrow.
British stalwart and famous knicker-retailer Marks and Spencer announced a 40% dividend cut alongside plans to close 100 high street outlets by 2022, shifting focus instead onto its online store.
One FTSE 250 stock that has fallen way off my watchlist is Intu Properties (LSE: INTU). Never mind that shares in the shopping centre operator crashed 36% in a day when a shareholder consortium abandoned its £2.9bn takeover deal late last year.
Since December 2018 shares have tumbled from 121.2p to 87.6p, following disappointing full year results. And the real estate giant is tangled up with Sir Philip Green as landlord for his wayward Arcadia Group.
My confidence in Intu is at an all-time low and the market agrees with me.
Several nine-figure acquisitions in the last four years have put pressure on Intu’s debt-to-assets ratio, breaching the board’s target of 50%.
A dour May trading update saw chief executive Matthew Roberts revise down net rental income at its UK and Spanish shopping centres from a loss of between 1% and 2% to more like minus 4% or 6%.
Roberts added that the rest of 2019 would be “challenging” because insolvencies were higher than expected and tenants were delaying new lettings because of the uncertain economic climate.
The numbers don’t stack up, especially when shoppers are deserting the high street.
Figures released by the British Retail Consortium (BRC) this week found UK footfall plummeted 3.5% in May and retail sales suffered their largest drop on record.
Turmoil from the never-ending slow bleed of Brexit is keeping buyers away from stores and colder spring weather has contributed to a lack of enthusiasm for traipsing around shopping centres, the BRC said.
By contrast, online sales are looking sunnier than ever. Don’t say I didn’t warn you.
Tom Rodgers has no position in any share mentioned. The Motley Fool UK has recommended boohoo group. 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.