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This growth stock has thrashed the FTSE 250. Is there more to come?

Dull companies can be a source of great profits. Indeed, investors can often make far better returns backing these kinds of stocks over those that traditionally quicken their pulses (oil and gas or technology minnows).

Today, I’m looking at a rarely-discussed firm that has done seriously well for those that were willing to back it. 

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Outperformer

In the last 12 months, shares in self-storage business Safestore (LSE: SAFE) have climbed 40% in value. For comparison, the FTSE 250 index — of which the company is a constituent — is up ‘just’ 15%. 

Can this form continue? Quite possibly. 

This morning, the company revealed an 8.3% rise in total revenue (at constant exchange rates) over the three months from November to January. Like-for-like revenue for the quarter was up 5.9%.

Broken down, trading in the UK was particularly stellar. Aided by new acquisitions and store openings, revenue here was 8.2% higher (to £30.3m) compared to over the same period a year earlier. The firm’s operations in Paris also did well with revenue rising 6.7% to €11.1m.

Based on these numbers, CEO Frederic Vecchioli stated that the company is on course to meet its expectations for the full year. With new locations in Gateshead and Sheffield scheduled to open in the next few months (and another being unveiled in central Paris before the end of 2020), I certainly wouldn’t bet against this happening.

The only issue is that Safestore’s stock now looks expensive, trading as it does on 27 times forecast earnings. This — combined with lack of reaction in early trading — leads me to think that gains might be less impressive going forward.

So, while our penchant for accumulating more and more stuff makes this an area of the market worth following, the relatively low barriers to entry (listed competitors include Big Yellow and Lok ‘n Store) highlights the importance of not paying too much to get exposure. 

One for the watchlist, perhaps?

Bull in a china shop

Another example of a ‘boring’ company that’s been doing all the right things for its shareholders is ceramic tableware supplier Churchill China (LSE: CHH). The Stoke-on-Trent-based firm’s customers range from pub, restaurant and hotel chains to contract caterers to health and education organisations. 

Again, this a company that has outperformed its index. In the last year alone, the valuation has climbed 64%. The FTSE Small-Cap is up 11% in comparison.

January’s trading update for the whole of 2019 was encouraging with the company stating that it had seen decent trading in the UK and its overseas markets. Indeed, things have been going so well that management reported operating performance would likely be “slightly ahead of current market estimates“. 

With decent margins, rising returns on the capital it puts to work, no debt and consistent dividend hikes, Churchill ticks a lot of my boxes when looking for great potential investments. The fact that a decent proportion of its shares are still owned by the Roper family — some of whom serve on the board — also gives me confidence that the business will continue to be managed with its shareholders in mind.   

Like Safestore, however, Churchill’s shares now trade on a lofty valuation (23 times expected earnings). Although short-term movements in the market are pretty much impossible to predict, this at least suggests to me that the share price may need to cool down a bit before moving higher.

The high-calibre small-cap stock flying under the City’s radar

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Churchill China. 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.