These two FTSE 250 stocks have thrashed the market, almost doubling your money in the last six months. Can they repeat the trick?
Home furnishings rocket Dunelm Group (LSE: DNLM) is up an incredible 90% in six months, 10 times growth across the index as a whole. After a bumpy five years or so, momentum is firmly on its side.
I’m a bit wary of momentum stocks. Investing goes in cycles and last year’s winner can all too often be this year’s loser. But the Dunelm share price looks really strong right now.
The £1.88bn group sells bedding, curtains, blinds, furniture, lighting, kitchenware and bathroom items and, judging by the plight of the UK high street, it should be struggling in pre-Brexit Britain. But it isn’t.
Earlier this month, it reported strong trading across its business and said its financial year to 29 June will beat expectations. It now expects profit before tax to range £124m-£126m, up from an underlying £102m last year.
That’s fighting talk from a company that started life in 1979 from a market stall in Leicester. It now describes itself as a market leader in the £13bn UK homewares market and active in the £11bn UK furniture market.
It operates 171 stores, of which 169 are out-of-town superstores and, as a multi-channel retailer, also essentially trades online.
The group looks in a healthy financial state with gross margins of 50.3% in the first half of this year, up from 48.6% last year. It’s also been paying down net debt, which now stands at just £72.9m, equivalent to 0.48 times earnings.
The summer’s poor start has been a boost for Dunelm as customers do up their homes instead of enjoying the sunshine, although that may reverse as the weather threatens to pick up. Another worry is that Dunelm stock now trades at a pricey 20 times earnings, and yields less than 1%. But Peter Stephens reckons its online strategy should pay off. And I like its style too.
If I had a vegan-friendly sausage roll every time a stock analyst said Greggs (LSE: GRG) was on a roll, I’d be rolling in them. The Greggs share price is up 81% so far this year, a fraction behind Dunelm, and will have more than tripled your money over five years, growing 335%.
The group now boasts more than 2,000 stores and latest figures show total sales rose 15.1% in the first 19 weeks of 2019, at a much faster lick than 2018’s figure of 4.7%.
Greg has also engineered a reputational change. Shoppers are no longer sniffy about its sausage rolls and sugary doughnuts, as it now complements them with healthier options. That’s a harder trick to pull off than it looks. Oh, and it’s also mastered social media, gaining a healthy fan base too.
Greggs to go
The £2.3bn group said in May it is targeting “materially higher sales for the 2019 year as a whole than we had previously been expecting.” Inevitably, Greggs’ stock isn’t cheap, trading at around 30 times earnings, while the current yield is just 1.55%.
Once again, hot summer weather could dim customers’ appetites. But like Dunelm, Greggs could just keep rolling on. Royston Wild reckons he could retire on it.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.