As there is not expected to be a major change in the company’s operating environment over the short run, and the stock appears to lack a margin of safety, there may be better opportunities available elsewhere in the retail sector in my opinion.

Challenging outlook

The third quarter proved to be a somewhat mixed period for Sainsbury’s. Its grocery sales grew by 0.4%, with Groceries Online and Convenience recording sales growth of 6% and 3% respectively. However, its General Merchandise sales declined by 2.3%, while Clothing sales dropped by 0.2%. Overall, this led to a fall in total retail sales of 0.4%, with LFL sales down by 1.1% when compared to the same period of the previous financial year.

Clearly, this is a disappointing performance. However, it is not totally unexpected, since the wider retail sector has been reporting difficult operating conditions for a number of months. Consumers are cautious about their financial future, and this seems to be causing a reduced appetite for a variety of retail products.

This situation is expected to continue over the medium term. Sainsbury’s is forecast to post earnings growth of just 2% in the current year, followed by growth of 4% next year. Since it trades on a price-to-earnings (P/E) ratio of 13.4, it appears to lack a margin of safety. While the acquisition of Asda may provide some relief in terms of cost reductions, the stock appears to be overpriced relative to some of its industry peers during what could prove to be a difficult period for the retail sector.

Growth potential

Of course, the prospects for budget retailers could be brighter than the wider retail segment. Consumers seem to be growing ever more price conscious, and this may lead to them trading down to no-frills options such as B&M (LSE: BME). It is seeking to expand its presence, and appears to have encouraging growth prospects.

For example, in the current year it is forecast to post a rise in earnings of 13%, followed by further growth of 14% next year. This puts it on a price-to-earnings growth (PEG) ratio of 1.4, which suggests that it may offer good value for money.

Clearly, it is difficult to predict how consumer confidence will change during the course of the year. At the present time, though, Brexit seems likely to remains a dominant news story during the course of 2019, which could impact on consumer behaviour. This could present growth opportunities for retailers such as B&M, with investors not yet appearing to have factored in the company’s growth potential over the next couple of years. As such, it may prove to be an appealing investment in my opinion.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK owns shares of B&M European Value. 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.

This, therefore, could be a buying opportunity for shares such as Barclays. It seems to have an improving business model after making major changes, while its valuation suggests that the risks it faces may already be priced in. Alongside another share which reported interim results on Tuesday, it could offer investment potential for the long run.

Solid performance

The company in question is value retailer B&M (LSE: BME). It released first-half results that showed a rise in revenue of 16.1% to £1,563m. In the UK, like-for-like (LFL) revenues were up 0.9% on an underlying basis. Group adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) increased by 13.5% to £131.8m, with cash flow from operations increasing from £44.2m in the first half of last year to £67m in the first half of the current year.

The company opened 22 new B&M stores in the first half of the year. It is on track to open at least 58 new stores this year. In Germany, its revenue growth was 4.1%, although margin was affected by clearance activity. It expects to open 10 new stores in Germany this year.

Looking ahead, B&M is forecast to post a 13% rise in earnings this year, followed by further growth of 14% next year. It trades on a price-to-earnings growth (PEG) ratio of 1.4, which suggests that it could offer a wide margin of safety. As such, it could deliver share price growth over the medium term.

Uncertain prospects?

As mentioned, Barclays and a number of its sector peers face uncertain outlooks due to Brexit and the prospects for the world economy. While this may hold back the stock’s share price performance in the short run, its long-term outlook appears to be positive. In fact, its 20% decline in the last six months may have created a buying opportunity.

The stock is forecast to post a rise in earnings of 13% in the next financial year. Despite this bright outlook, it has a PEG ratio of just 0.7. This suggests that it may be trading significantly below its intrinsic value, which could provide an investment opportunity for the long term. And with dividends expected to grow from 3p per share in 2017 to as much as 8p per share in 2019, its forward yield of 4.6% could increase its total returns yet further. Meanwhile, dividend cover of 2.8 times which is forecast for 2019 suggests that additional dividend growth could be ahead.

Therefore, while today may seem to be the wrong time to buy Barclays as a result of its uncertain outlook, it could offer improving total returns in the long run. Within a Stocks and Shares ISA that limits the tax paid by an investor, it may deliver impressive levels of profitability.

The post Have £1,000 to invest? Why I’d go for Barclays held in a Stocks and Shares ISA appeared first on The Motley Fool UK.

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Peter Stephens owns shares of Barclays. The Motley Fool UK owns shares of B&M European Value. The Motley Fool UK has recommended Barclays. 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.

Today, I’m looking at two stocks which have delivered healthy gains for investors over the last five years. The first is small-cap giftware and stationery manufacturer IG Design Group (LSE: IGR).

I’ve long been a fan of this £330m AIM-listed company, which sells products such as wrapping paper and party decorations. IG Design’s share price has risen by almost 950% over the last five years, helped by a 350% increase in profit over the same period.

The company’s growth has been driven by a mix of organic expansion and acquisitions. Today, IG announced one of its largest acquisitions to date, a £56.5m deal to acquire Impact Innovations, a leading supplier of gift packaging and seasonal decorations in the USA.

To help fund this transaction, IG plans to raise up to £50m in a placing of new shares at 510p. Despite the new shares selling at a modest discount to today’s opening price of 534p, the share price was up by about 4% at the time of writing. This strong performance suggests to me that investors support this deal and are confident of further growth.

Is the stock a gift at this price?

Paul Fineman, Design Group’s chief executive, expects to achieve $5m in annual cost savings over the next three years. Fineman says that the acquisition of Impact Innovations should add to earnings per share in each of the next three years, and expand the group’s customer base of major US retailers.

Today’s gains leave IG Design shares looking fully priced, on 21.8 times forecast earnings for 2018/19. However, this firm’s track record of growth suggests to me that the business could grow into this valuation fairly quickly. For long-term investors, I’d continue to rate these shares as a buy.

A market-beating retailer

One place where you might find IG Design Group products for sale is your local branch of B&M European Value Retail (LSE: BME).

B&M’s blue and orange storefronts have become a regular site in town centres and retail parks, as this discount retailer has expanded rapidly across the UK. Shares in the firm — which sells popular ranges of groceries and household goods — have risen by 44% since its flotation in 2014.

Annual profit has risen from £38.6m to £185.6m over the same period. One reason for this is that the group enjoys an operating margin of about 8% — more than double any of the listed supermarket chains.

There could be more to come

B&M plans to open another 50 stores in the UK this year, taking its total to around 600. Like-for-like sales rose by 4.7% last year, and the group’s pre-tax profit rose 25% to £229m.

This level of sales growth is well ahead of the big supermarkets. It suggests to me that the group’s value-focused business model fits well with modern shopping habits and could be taking market share from traditional retailers.

Trading on 19 times forecast earnings for the current year, this stock isn’t obviously cheap. But earnings per share are expected to rise by about 18% this year, and by a similar amount next year.

If this growth can be maintained, I think the current share price could still leave room for further gains. In my view, B&M could be a future FTSE 100 stock.

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Roland Head 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.

The performance of the Diageo (LSE: DGE) share price has been highly impressive over the last year. The beverages company has recorded a rise of 20%, which is well ahead of the FTSE 100’s gain of 3% in the same time period.

Looking ahead, further growth could be ahead for the company. Although it may now lack the margin of safety that it once had, it could still beat the index. As a result, now could be the perfect time to buy it alongside another growing business which reported positive results on Thursday.

Growth potential

Diageo’s future prospects appear to be improving. The company has been focusing on productivity improvements in recent quarters as it seeks to become increasingly efficient. It has also invested in improving its customer insight through superior analytics, while enjoying broad-based growth across its major regions.

One area where the company has an increasingly strong position is emerging markets. It recently launched a partial tender offer to increase its stake in China’s SJF. This could increase its stake in the business to 60% and provide it with improved growth prospects in a country where alcoholic beverage consumption is expected to grow at a rapid rate.

Certainly, Diageo’s share price rise of the last year means it now has a high valuation. It trades on a price-to-earnings (P/E) ratio of around 22, which is among the highest in the FTSE 100. However, with a strong focus on diversity in terms of its brands and regional exposure, it appears to offer relatively low-risk growth prospects. As such, now could be the perfect time to buy it ahead of 9% earnings growth forecast for the current financial year.

Low valuation

Also offering the potential to outperform the FTSE 100 is budget retailer B&M (LSE: BME). It released a positive trading update on Thursday for the first quarter of its financial year. Revenue grew by 21.3% during the period, with UK revenue moving 8.3% higher. This included like-for-like (LFL) growth of 3.6% in the UK on an underlying basis.

During the quarter, the company opened four new stores in the UK. It remains on target to open 50 new stores in the full year, with the openings weighted towards the second half. Four new stores were also opened by the company’s value convenience chain, Heron Foods. It continues to trade well, while revenue growth of 7% at Jawoll indicates that it offers an improving outlook.

With B&M forecast to post a rise in earnings of 13% in each of the next two financial years, its price-to-earnings growth (PEG) ratio of 1.4 suggests that it could be undervalued at the present time. With consumer confidence being low, shoppers may focus on budget stores to a greater extent. This may act as a catalyst on the company’s performance over the medium term.

The post Here’s why the Diageo share price appeals to me, and why it could beat the FTSE 100 appeared first on The Motley Fool UK.

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Peter Stephens owns shares of Diageo. The Motley Fool UK has recommended Diageo. 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.

With its shares 15% off the highs reached in February, I think the company could be a decent option for opportunistic growth hunters, even if it still trades on premium valuation to many in the sector.

Solid profits

Despite experiencing a weak fourth quarter due to the cold weather, group revenues rose 22% at constant currency to £2.98bn compared to the previous year. Adjusted pre-tax profit also increased by a very solid 16.5% to £221.5m for the 52 weeks to 24 March, exceeding analyst expectations.

With numbers like these, it’s no surprise that B&M is bucking the trend seen across the retail world and expanding its estate at a fair clip. A total of 47 new stores were opened over the year, with another 45 planned for the current financial year. Elsewhere, the acquisition of Heron Foods seems to be playing out well with an “excellent performance” seen in the eight months it’s been owned by B&M. A huge distribution centre in Bedford is also under construction and due for completion in 2020.                                                    

Commenting on results, CEO Simon Arora reflected that the company’s value-focused model was “highly relevant” for the wobbly economic climate in which we find ourselves. The company had also made a “pleasing start” to the new financial year with like-for-like revenue growth of 3.1% recorded in the first eight weeks.          

Trading at 18 times forecast earnings for the 2018/19 financial year, B&M is clearly one of the more expensive retail stocks out there — a fact which may explain why the stock was trading fairly flat in early trading this morning. That said, it stands out as a shining example that not everyone in the industry are going through tough times. Indeed, management’s decision to increase the final dividend by just over 23% to 4.8p per share (bringing the full-year payout to 7.2 per share, up 24.1%) is indicative of just how confident it is on the company’s outlook. A PEG ratio of 1.28 also suggests that the shares still offer reasonable value for the expected earnings growth.  

Given the above, I wouldn’t bet against B&M’s share price resuming its march higher over the medium term.

Reassuringly expensive?

Another option for those keen to capitalise on UK shoppers’ love for a bargain would be Primark owner Associated British Foods (LSE: ABF).

April’s interim numbers for were mostly fine with sales and profit growth achieved in all of the company’s businesses with the exception of Sugar segment. Group revenue rose 3% in constant currency to £7.42bn with adjusted pre-tax profit rising 1% to £628m. Management’s full-year outlook was unchanged.

True, the shares aren’t cheap. A forecast price-to-earnings (P/E) ratio of 20 for the financial year to September is a huge contrast to high street stalwarts such as M&S and Next.

Nevertheless, the diversified nature of the company’s operations and overseas growth potential means that it’s less dependent on the UK shopper for sales and profits than peers. A net cash position of £123m is also attractive compared to the stretched balance sheets of rivals.

Should consumers become even more cost conscious as we approach our departure from the EU, I think the £21bn-cap FTSE 100 constituent could be in a sweet spot. 

The post Profit exceeds expectations at this FTSE 250 growth stock. Time to buy? appeared first on The Motley Fool UK.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods. 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.

Overseas expansion at last 

For Equiniti, whose shares have returned over 45% in the past year, my bullishness is driven by its market-leading position in the UK, where it serves some 70% of FTSE 100 firms, and its impressive growth prospects in the US.

At home in the UK, Equiniti provides firms with services it aptly describes as non-core but mission-critical. This means providing corporate customers with services as varied as share registration, pension administration and regulatory compliance software.

The company already has market-leading positions for several of its core offerings. But it is still growing sales at a steady clip through bringing on board new clients, including 75% of all new IPOs in 2017, adding on new services and cross-selling existing services to other customers.

On top of this organic growth, Equiniti now has access to the world’s largest market for its services, the US, through the £176m purchase of Wells Fargo Shareholder Services that is expected to close in Q1 2018. This business is already profitable but as a small, non-core part of Wells Fargos’ larger banking group it was relatively under-invested.

Equiniti plans to change that and is in the process of migrating over the variety of additional services and software that it offers in the UK to the US. This should help the firm gain market share as clients prefer a one stop shop for many of their back office needs.

With growth at home and in the US on tap, a stable balance sheet and impressive defensive characteristics, I reckon Equiniti’s impressive 2017 performance can be more than repeated in 2018.

Taking market share from the big guys

Discount retailer B&M’s stock price rose by over a third in 2017 on the back of store expansion and strong like-for-like sales growth from its existing estate. With consumers still attracted to discounters’ pricing and product offerings and plenty of room for continued expansion, I reckon it could end up performing just as well in 2018.

In the half year to September, it ginned up a stunning 7.5% increase in same-store sales for its eponymous UK brand, while the continued rollout of new stores at home and in Germany and the acquisition of Heron Foods led to group sales rising 21.7% to £1.3bn.

Gross margins did slide a bit from 34.7% to 33.9% due to rising input prices and a shift towards more grocery products in stores, but EBITDA margins remained very high for the sector at 8.6%. This is higher than competitors’ margins and gives B&M significant scope to absorb rising costs without passing them on to consumers. This should drive further market share gains.

With a strong management team and consumers attracted to its offerings in bull and bear markets alike, I fancy B&M’s prospects for continued market outperformance in 2018 are looking quite good.

The post 2 top growth stocks I’d buy in 2018 appeared first on The Motley Fool UK.

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK owns shares of Equiniti. 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.

As such, Tesco could now be an even more attractive investment opportunity for the long run. Of course, it’s not the only retailer which may be able to help you make a million in retirement. Reporting on Tuesday was another stock which appears to offer high growth at a reasonable price.

Improving performance

The company in question is B&M (LSE: BME), the multi-price value retailer. Its interim results showed a rise in revenue of 21.7%, with like-for-like (LFL) revenues rising by 7.5%. This helped adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) to increase by 19.8%, while profit before tax rose by 17.8%.

During the period, there were 20 new store openings in the UK including three relocations. This means the company is on track to open gross 50 new stores in the current financial year. The company’s German business Jawoll opened seven new stores and is on track to open 11 new stores this year.

The company has also purchased land in the UK which will be used for a new Southern distribution centre from 2019. Alongside this, discount convenience retailer Heron Foods was acquired in August and it could provide a further catalyst for the company’s bottom line.

Growth potential

Looking ahead, B&M is forecast to record a rise in its bottom line of 21% in the current year, followed by further growth of 18% next year. This puts it on a price-to-earnings growth (PEG) ratio of 1, which suggests that it could offer share price growth potential. With consumers seeing their disposable incomes come under pressure in real term, its value-based business model could become more popular on a relative basis.

Despite the uncertainty facing the UK retail sector, Tesco also has high growth potential. Excluding the impact of the Booker acquisition, it is expected to post a rise in its bottom line of 51% this year, followed by growth of 26% next year. Its PEG ratio of 0.5 is relatively low and shows that it offers a wide margin of safety.

Tesco has been able to generate efficiencies in recent years through a disciplined strategy. It is therefore well-placed to counter any threat from discount retailers should inflation continue to rise and consumer confidence remain at a low ebb. With the addition of Booker to its business, it may offer more resilient growth due to a dominant position within the food services and retail segments. As such, now could be the perfect time to buy it alongside B&M for the long term.

The post Buying Tesco plc on Booker news could make you a millionaire in retirement appeared first on The Motley Fool UK.

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Peter Stephens owns shares in Tesco. 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.

While the company is not immune to the trading troubles brought on by deteriorating economic conditions in the UK — it was hampered by a “very tough trading environment” in the first half of the fiscal year — it continues to post decent revenues growth as its store refit programme helps draw shoppers through its doors, and development of its e-commerce proposition carries on. Like-for-like sales rose 5.1% during February-July.

The City is expecting earnings at Moss Bros to rise 4% and 1% in the years to January 2017 and 2018, respectively, resulting in a prospective P/E reading of 16.4 times. While these medium-term projections may hardly be magnetic, Moss Bros’ dividend prospects should certainly make investors sit up and take notice.

In fiscal 2018, the London-based company is predicted to shell out a 6.2p per share reward, up from 5.89p in the prior 12 months, and yielding 6.7%. And the yield steps up to 7.1% next year, thanks to expectations of a 6.5p payment.

Value star

I am also convinced that, with spending pressures mounting in the UK as consumer confidence falls and real incomes deteriorate, that sales over at B&M European Retail (LSE: BME) should keep on chugging merrily higher.

Reflecting previous tearaway sales performance, the Liverpool-based firm has seen its share value explode 68% over the past 12 months alone. And B&M’s market price should continue to swell as sales on a like-for-like basis jumped 7.3% in the UK between April and June, the company said in its latest trading statement.

As I say, rising pressure on household budgets should send more and more shoppers into the arms of B&M in the years ahead. And the company is rapidly expanding to capitalise on this, opening nine new stores in the UK, and a further four in Germany, in the most recent quarter.

Accordingly, the City is anticipating earnings to leap 19% and 17% in the 12 months to March 2018 and 2019, respectively. And while current projections results in an elevated P/E ratio of 22.8 times, I reckon this is brilliant value given B&M’s prominent role in an expanding market.

Competitive crisis

Like the retailers I have discussed above, Tesco is also expected to deliver profits growth now and for next year. Britain’s biggest supermarket is predicted to report expansion of 51% in the year to February 2018, and by 26% in the following period.

But unlike Moss Bros, the scale of competition Tesco is facing to keep profits rattling higher is becoming increasingly formidable. Indeed, the same pressure on consumers’ wallets that is driving shoppers heading over to B&M is also casting a shadow over the long-term earnings potential of Tesco, with shoppers of all income groups piling into the likes of Aldi and Lidl in greater numbers.

Current earnings projections leave the grocery giant dealing on a forward P/E ratio of 18.2 times. Unlike B&M and Moss Bros, however, I would be unhappy to pay a pretty premium for Tesco right now.

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Royston Wild 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.

One of the hallmarks of high-quality businesses is that they have very effective financial and legal teams. This can result in big benefits, such as lower interest payments on debt or lower tax costs.

FTSE 250 chemical group Victrex (LSE: VCT) is a good example. The company’s shares rose by 8% today after it announced that the group’s effective tax rate will fall from about 21% to around 12% with immediate effect.

The change is the outcome of discussions with HMRC about the UK’s Patent Box legislation. This refers to a set of new laws introduced in 2013, which were designed to encourage companies to commercialise their patents in the UK.

Management expect the reduction in tax liabilities to have “an ongoing favourable impact on earnings per share and cash”. I should think so. I estimate that this reduction would have added about 6% to the group’s profits last year, and around 9% in 2015.

Shareholders should benefit directly from these improvements, as Victrex has no debt and an operating margin of 40%. Extra profits should mean extra cash to fund dividends and growth.

Victrex’s financial year ends on 30 September. So any benefits will be limited for the current year. But based on today’s news, I believe earnings forecasts for 2017/18 are likely to rise by between 5% and 10%.

Taking the mid-point of this range, this would put the company’s shares on a 2018 forecast P/E of 20 after today’s gains, with a prospective yield of about 3%. I suspect that’s a fair price after today’s news.

Profits are flying

Sales and profits at discount retailer B&M European Value Retail (LSE: BME) have tripled since 2012. This strong performance could be set to continue, judging by the latest news from the firm.

B&M recently acquired Heron Food Group, a discount convenience retailer with 251 stores, mostly in the north of England. The group plans to use the Heron stores to develop “a complementary, proven and profitable discount convenience grocery brand”.

I used to live close to a Heron store and shopped there regularly for certain essentials. My view is that the two companies should be a close and logical fit. Most of the Heron stores I know of are well located. Combining this with B&M’s large-scale marketing and product sourcing should be a profitable mix.

B&M recently reported like-for-like growth of 7.3% during the three months to 24 June. That’s a very strong performance when compared to the big three supermarkets, which are struggling to keep LFL growth ahead of inflation.

Heron’s 2016 pre-tax profit of £8.6m would have added 4.7% to B&M’s pre-tax profit last year. I think there’s scope for this contribution to increase in the future. With strong growth continuing at its main stores, I think there’s a good chance B&M’s results will beat expectations over the next couple of years.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Victrex. 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.

Currency woes

For instance, only last month Sports Direct International (LSE: SPD) revealed that for fiscal 2017 the group suffered a near 60% fall in underlying profit before tax, even though group revenue had climbed 11.7% to £3.25bn. Underlying earnings came out even worse, plunging 67.9% to just 11.4p per share from 35.5p the previous financial year.

Strangely enough, the news sparked a frenzy of buying activity with the share price rising 14% to 344p, before settling at 335.1p, its highest level in almost a year. Like I said, it’s a funny old game! Management attributed the decline in financial performance to the negative impact of the weaker pound since the EU referendum, as well as strategic challenges in its operations in continental Europe. So why has the market reacted so positively to such a weak performance?

The Selfridges of sport

Well, believe it or not, the full-year results were actually better than the market was expecting. Additionally, the group’s Chief Executive Mike Ashley claimed that Sports Direct was on course to become the ‘Selfridges’ of sport by migrating to a new generation of stores to showcase the very best products from its third party brand partners. The company also revealed it was aiming to achieve growth in underlying earnings of 5%-15% in full-year 2018. The optimistic outlook was welcomed by the market.

But I’m not convinced. The weak pound is increasing costs, and consumers are facing rising inflation and weak wage growth, all of which does not bode well for a retailer whose clientele still mainly comprises price-sensitive shoppers. Frankly, I see the recent share price rally and high earnings multiple of 26 as a good time to sell.

Convenience is king

Meanwhile, one UK retailer with prospects I’m a lot more bullish about is B&M European Value Retail (LSE: BME). The group behind the popular B&M Bargains and B&M Home Stores last week announced the acquisition of Heron Food Group Limited, a discount convenience retailer operating predominantly in the North of England with 251 stores.

The FTSE 250-listed business is already the UK’s leading multi-price value retailer with 543 B&M branded stores, as well as 79 Jawoll branded stores in Germany. The £152m acquisition of Heron will enable B&M to develop and roll out a complementary, proven and profitable discount convenience grocery brand. The customer profiles of Heron and B&M are similar and both formats are expanding successfully.

B&M’s shares have performed well since I last recommended them in February, gaining 22%, but I think shareholders would be wise to sit tight and hold on for further gains. Furthermore, with earnings forecast to rise by more than a third over the next couple of years, new investors shouldn’t be deterred by the premium P/E rating of 21.5, as this could be a price well worth paying for continued long-term growth.

The post Why I like this mid-cap stock over Sports Direct International plc for the long term appeared first on The Motley Fool UK.

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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Sports Direct International. 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.