The best companies’ shares are naturally the most sought after, and the very best examples command share prices that are in the stratosphere. But a market crash could cause prices to plummet, which just might be an opportunity to buy into my three favourite UK stocks.
Boohoo (LSE: BOO) — the online clothing retailer — has grown annual revenues from £139m in 2015, to £856m last year. Net profits have risen by a similar degree, equating to an increase of around 500%. What’s more, this growth has been consistent, with both annual revenues and profits growing by at least 30% in each of the last four years.
2019 saw the group add to its ambition of becoming a major multi-brand online retailer, with the acquisitions of Karen Millen and Coast. The group is focused on attracting young, value-orientated customers, with its range of trend-led clothing, all delivered online with no expensive stores to worry about.
Annual revenues for 2020 are again expected to increase by 40%, having already hit the £1bn mark in the first 10 months of the year. Complementing this growth is a strong balance sheet. Boohoo has net cash of over £200m, and has a proven track record of increasing its net assets.
Huge Profit Margins
Like Boohoo, Rightmove (LSE: RMV) has also consistently grown revenues and profits, all while maintaining an unusually high net profit margin. In fact, its net profit margin has been steady at around 60% for the last five years.
The online property company benefits from having a very profitable business model, which does not require large amounts of capital and investment. Rightmove doesn’t have to hold large amounts of inventory or physical assets, it just needs to operate its online search portal. This operating efficiency is demonstrated by its ROCE (return on capital employed) of almost 800%, which is quite amazing.
The company’s latest results showed that both revenue and pre-tax profits grew by 10% in the first half of the year, with continued growth in its agency and new housing business lines. Rightmove is the UK’s number one search portal for housing, with its website registering over 800m visits in the first six months of the year. This is another I like.
Fevertree’s (LSE: FEVR) rise has been even more dramatic. The maker of premium mixer drinks has more than doubled net profits in the last two years. Profits of £61m in 2018 were nearly 60 times those of four years prior.
As well as remarkable growth in both the top and bottom line, it has an enviable balance sheet. At year-end, it had a net cash position of over £100m, while a ROCE of 40% shows just how much Fevertree is able to get out of its assets.
Revenue growth may have slowed in the UK, but the company is benefiting from a ‘premiumisation’ trend that is increasingly international. In 2019, Fevertree’s US and rest-of-the-world sales rose by over 30%, highlighting the huge potential of its international expansion.
Would I buy these three? Despite their extraordinary operating performances, I think all of them are too expensive today. With a price-to-earnings ratio (P/E) of 26, I think Fevertree shares are the best value for me, but in the event of major price falls, I might be tempted to buy all three.
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Thomas has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo group and Rightmove. 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.