I’m always hunting for defensive, cash-generating and resilient stocks if they’ve growth potential. That’s why I’m keen on the FTSE 100’s AstraZeneca. But the Lock’n Store (LSE: LOK) share price looks perky today on the release of the half-year results report, and I like that company too.
As with many successful and growing publicly-listed companies, this one has a good record of advancement in the financial figures. And that includes an impressive escalation of the shareholder dividend.
A sought-after share
But the stock’s charms haven’t gone unnoticed. The valuation is high, with the forward-looking earnings multiple running near 40 for the trading year to July 2021. However, even after a mighty bounce-back from its recent coronavirus lows, at 570p, the share still needs to advance by around 27% to hit its February high near 725p. I think there’s every chance it will.
A rich valuation tends to automatically put some investors off a stock, and many will move on to the next opportunity. I did that myself for years but discovered such an approach kept me out of most of the best outperformers on the stock market.
Perhaps the key to successfully investing in higher-rated companies is to focus on growth. You should look for a record of solid improvement in the financial numbers. And that’s what I see in Lock’n Store. Of course, the big risk of flirting with higher valuations is any set-back operationally could cause a valuation down-rating. This leads to a plunging share price.
As well as risks, there are opportunities. For example, if you’d have put money into Lok’n Store 10 years ago and left it there until today, you’d be sitting on a capital gain of almost 600%. But some of that gain could have occurred because of a re-rating of the valuation upwards as the growth story became recognised by the market. On top of those gains, you’d have enjoyed a rising income return from the shareholder dividend.
Decent trading and growth on track
Today, the company reported decent progress in most of the ‘right’ figures. And the directors even pushed up the interim dividend by 9%. That decision tells us much. Indeed, all the stores remain open “while maintaining social distancing measures.” On top of that, Lok’n Store has been paying all its staff as normal through the crisis with “minimal use of [the] government furlough scheme.”
Trading so far in the firm’s current trading year to July has been “resilient.” And I think the company’s performance through this pandemic underscores the strength of the business model. Now, I’m beginning to understand why the stock is prized by investors.
Meanwhile, the expansion pipeline looks healthy with 16 sites that chief executive Andrew Jacobs reckons will “significantly increase operating space over the coming years.” It seems that neither the growth story nor current trading has stalled. I’d be a buyer of the shares here.
Kevin Godbold has no position in any 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.