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I think this FTSE 100 growth champion could double your money

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If you’re looking for an FTSE 100 stock that has the potential to double your money over the next three to five years, I think DCC (LSE: DCC) could be the company for you. 

This distribution business has grown rapidly over the past few years. A combination of organic growth and sensible bolt-on acquisition have enabled the firm to scale up in its key markets. That’s helped deliver earnings per share growth at a compound annual rate of 14.2% per annum for the past six years. And as earnings have pushed higher, so has DCC’s share price.

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During the past five years, the stock has more than doubled investors’ money, that’s excluding dividends paid. Including distributions to investors, DCC has returned 16.4% per annum for the past five years, turning every £10,000 invested into £21,990, a total return of 119%.

Of course, past performance isn’t indicative of future returns. But considering the strength of DCC’s underlying businesses, I think there’s a very high probability the company could double investors money again over the next five years.

Return to growth

DCC’s fiscal 2019 was one of the worst for growth since 2014. The company’s earnings per share actually declined by 6.5% following four years of 20%+ earnings growth. The City believes this was just a blip and growth is expected to roar back in fiscal 2020.

Analysts have pencilled in earnings per share growth of 21% for the current financial year, and it looks as if the company is well on the way to meeting this forecast.

According to today’s first quarter trading statement, DCC has “delivered good growth in group operating profit for the first quarter ended 30 June 2019, driven by acquisitions completed in the prior year.

Further, while profits will be weighted to the second half of the firm’s financial year, “the group reiterates its belief that the year ending 31 March 2020 will be another year of profit growth and development.” Overall, management believes the business is trading in line with expectations.

Acquisitions have always formed a crucial part of DCC’s growth strategy, and this isn’t going to change anytime soon. Back in May, the company told investors that it had committed £370m to acquisitions during the previous 12 months, to bulk out its fuel and technology business.

There’s also been the sale of its UK generic pharma activities and related manufacturing facility in Ireland, which management believes will “sharpen” the focus of the group’s pharmaceutical business “allowing it to concentrate on those areas where it has market-leading positions and sustainable competitive advantage.

Price worth paying

After considering all the above, it looks to me as if DCC is firing on all cylinders. That’s why I think this could be a great place to invest your money today.

The one sticking point is the company’s valuation. The shares are currently changing hands at a forward P/E of 18.7, which is above what I would usually be prepared to pay for a distribution business.

However, when you factor in the company’s growth outlook, historical returns and track record of sensibly reinvesting profits to create value for shareholders, I think the stock deserves this premium. There’s also a 2.1% dividend yield on offer for income investors.

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Rupert Hargreaves owns no share 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.

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