The company has reported that sales for the 26-week period to December 30 were £73.8m compared to last year’s £66.7m with like-for-like sales up 0.4% although this “was distorted by the absence of New Year’s Eve, one of the most significant trading days in the current period.” After extending the trading period by one week, to include New Years, like-for-like sales grew 1.9% year-on-year.

The firm is currently spending heavily to expand its offering across the country and including the costs of opening new premises, it reported an operating loss of £3.7m for the period. Stripping out these exceptional costs, adjusted operating profit for the 27-week period including New Year’s Eve rose 9.1% to £6m.

Commenting on these figures, CEO Keith Edelman said: “I am delighted with our sales performance in the second quarter…New openings are performing particularly strongly, and site refurbishments are delivering healthy returns.“

Investing for growth 

I’m excited about its prospects as it continues to expand. Over Christmas, the firm opened three new Revolution bars in Solihull, Inverness and Putney with “each surpassing their initial sales targets,” something investors have come to expect from the group. Two new sites are slated to open before the end of this financial year in March, and management is targeting the opening of six more venues in the next fiscal period. 

Off the back of this expansion programme, analysts are expecting the firm to grow earnings per share by 10.5% this year and 10% for 2019, which implies that the shares are trading at a relatively attractive 10.1 times forward earnings. As well is this earnings growth, the stock currently supports a dividend yield of 3.1%, with the payout covered nearly three times by earnings per share and supported by a debt-free balance sheet. 

All of the above indicates to me that Revolution is an undervalued dividend stock that’s worthy of a place in your portfolio.

Market-beating income

Another pub group I believes offers value today is Greene King (LSE: GNK). the shares are both cheaper and support a higher dividend yield than those of Revolution, but this is offset by a weaker balance sheet. 

Specifically, the shares trade at a forward P/E of 8.2 and yield 6.4%, although the company has £2bn of debt and a gearing ratio of 100%. Greene King’s growth outlook is also more downbeat with analysts expecting the firm’s earnings to hardly grow at all over the next two years.

Still, despite the lack of growth and high level of debt compared to Revolution, I believe it is a great income and value stock. The market-beating dividend yield is covered twice by earnings per share leaving plenty of room to both pay down debt and distribute funds to investors (even on a cash flow basis the payout is covered twice).

The group is looking to shave £40m to £45m off its cost base this year and is renewing its customer offering to try to drive sales growth, including reducing prices and increasing staff, which means earnings growth will be slower, but this investment should pay off over several years. 

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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.

Takeover battle raging 

Revolution is currently in the middle of a takeover battle between Stonegate Pub Company Limited, which is offering 203p per share in cash for the firm, and the Deltic Group Limited, which is proposing an all-share merger. 

Today Deltic revealed its latest offer for Revolution. The proposal provides for a combination under which existing Revolution shareholders would own 65% of the group, and Deltic owners would hold 35% of the enlarged group. According to the buyer, the combined group should benefit from approximately £6.8m of currently identified pre-tax cost synergies and approximately £0.9m of pre-tax financing synergies. What’s more, the group is “expected to be highly cash generative and financed conservatively, ” and there is to be “no change to Revolution’s existing dividend policy.“

Unlike the Stonegate offer, which provides a quick cash exit for investors, the Deltic merger could create more value over the long term. Certainly, for income investors, this might be the better option as it would allow shareholders to benefit from the merger synergies and the growth of the enlarged group. 

At the time of writing, shares in Revolution are trading at a forward P/E of 14.5. If shareholders vote to merge with Deltic, this valuation could quickly become out of date as synergies push up earnings and cash distributions to investors. 

That said, if the company chooses the Stonegate route, investors buying today could find themselves out of pocket as the offer is 3p below the current share price. 

Emerging market cash cow 

If Revolution is not for you, Symphony International Holdings (LSE: SIHL) might be a better buy. Symphony is essentially a private equity investor. The firm is a leading investor in consumer-related businesses, primarily in the healthcare, hospitality and lifestyle sectors in the Asia-Pacific region. This unique strategy has produced some exciting results for investors over the past five years. 

Last year the company paid out $40m to investors via way of a dividend, equal to around 5.7% of its net asset value. This year, distributions are on track to be even more significant. At the end of last month, Symphony declared a $60.3m distribution equal to $0.10 per share, taking the total dividend paid in 2017 to approximately $82.3m or $0.14 per share for a yield of 17% (Symphony’s shares trade in London but are quoted in US dollars). 

And as well as the company’s high double-digit dividend yield, the shares also trade at a discount of approximately 33% to net asset value of $1.20 per share.

So overall, Symphony is cheap, and the company is returning vast amounts of cash to investors. However, I should point out that as the shares are traded in dollars, investors are exposed to foreign exchange risks, and for this reason, the discount to NAV may never close. Still, for risk-tolerant investors, this looks to be an exciting dirt-cheap dividend king. 

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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.

Of course, it is not the only stock with such a strong track record and bright growth outlook. One company reporting on Tuesday also appears to offer such characteristics. Could either company be worth buying right now? Or are their outlooks fully reflected in their valuations?

Growth potential

While the collapse of Monarch on Monday showed that trading conditions in the travel industry remain challenging, Ryanair has a positive growth outlook. The company is forecast to record a rise in its bottom line of 17% in the current year, followed by further growth of 13% next year. Despite such strong momentum, the stock has a price-to-earnings growth (PEG) ratio of just 0.9, which suggests that further upside could be ahead.

The reputation of the business is unlikely to have been enhanced by recent events. Customers may now think twice before booking with Ryanair due to the negative press coverage of recent weeks. However, the reality is that customers are unlikely to look elsewhere en masse over the long run due to the competitive prices which the company offers, as well as its strong position within the budget short-haul marketplace.

As such, while the near term may be uncertain for the company’s investors, the long term outlook for Ryanair appears to be positive.

Upbeat outlook

Also posting high share price returns has been Revolution Bars (LSE: RBG). The bar operator has gained 100% in the last three months due in part to a 203p cash offer being made for the business by Stonegate Pub Company. It has been recommended by the Board of Revolution Bars, and investors will vote on the potential deal on 17 October.

However, there is the potential for another bid from Deltic. It initially proposed a merger, which was rejected. It has until 10 October to make an offer and is performing due diligence at the present time. With the potential for a further bid in the short run, there could be further share price growth ahead.

As well as this, Revolution Bars released an upbeat set of results for the full year on Tuesday. They showed that revenue increased by 9.2% versus the prior year, with like-for-like sales up 1.5%. Gross margin was 82 basis points higher, while adjusted profit before tax increased to £9.3m from £7.4m last year. Therefore, even if there are no further bids and the current bid is rejected, the company’s improving performance suggests it could be worth buying for the long term.

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Peter Stephens has no position in any company 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.

These losses have sent shares in the former growth champion down to their lowest level on record, and after such declines, it is only natural for investors to ask if this is a company that can turn itself around, or is it a falling knife that should be avoided?

Buy, sell or hold?

According to last week’s press release, Revolution’s management now expects profit for 2017 to be roughly flat. Previously, the City had pencilled-in earnings per share growth of 7% for the year ending 30 June 2017. Management is blaming higher than expected costs as the reason for this revision.

Before the profit warning, shares in the bars group were trading at a forward P/E of 14, a relatively expensive multiple but one that was justified by Revolution’s projected and historical growth. For the last fiscal year, earnings per share grew by 14% and for the year ending 30 June 2018, analysts have pencilled-in EPS growth of 16%.

The problem with highly valued growth stocks is that they tend to fall quickly back to earth if they fail to meet expectations. Revolution is the prime example. The company’s high-growth multiple, coupled an illiquid market for the shares, exacerbated declines. However, it seems these declines are, for the most part, unwarranted.

Revolution’s profit warning was unexpected, and the revaluation of the shares is justified considering growth has now ground to a halt. But assuming the company repeats last year’s earnings performance and earns 14.6p per share after declines, shares in the company are currently trading at a forward P/E of 8.6.

What’s more, Revolution is flush with cash. At the end of fiscal 2016, the company reported a cash balance of £2.8m and operating cash flow per share of 28.4p. Most of this operating cash flow was spent expanding the group’s footprint, leaving a free cash flow per share of 2.7p.

These figures show that Revolution isn’t going out of business anytime soon, and the company has plenty of financial firepower to fund its recovery. Even if, in the worst-case scenario, growth stagnates for the next few years, management can dial back capital spending and instead return cash generated from operations to investors, which would result in a substantial increase in the company’s dividend yield.

For fiscal 2016, the company paid out 3.3p per share in dividends, covered 4.4 times by earnings per share. Analysts are expecting a total dividend of 5.3p per share this year for a dividend yield of 4.3%. The payout is covered three times by earnings per share.

Contrarian buy?

So, should you buy, sell or hold Revolution? Well, it’s clear that while the company does have problems, management has plenty of financial headroom to engineer a turnaround.

The company is highly cash generative and if a turnaround does fail this money may be returned to investors. Also, at the time of writing shares in the company trade at a deeply discounted valuation of only 8.6 times forward earnings. Considering these facts, it looks to me as if Revolution Bars is somewhat of a contrarian buy.

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Rupert Hargreaves owns shares in Revolution Bars Group. 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.

I believe it can because the company’s share price is largely rising in line with stellar financial progress. Indeed, in its first report since going public, interim results covering the six months to January, sales jumped a full 62% year-on-year to £68.1m and pre-tax profits rose an even more impressive 72.5% in the period.

The key has been winning contracts to supply goods to retailers covering the value spectrum from Argos to Tesco and John Lewis. And as the company puts its products into greater numbers of stores, its margins steadily increase due to economies of scale from procurement, shipping, storage and distribution.

While margins aren’t incredibly high for the products it sources, EBITDA margins rose to 12.9% in the period and there is plenty of scope for them to expand as the company crowds out smaller competitors due to increasing financial strength and customer relationships. As it pushes these smaller rivals into financial difficulty it also opens up space for further growth through acquisition by buying up distressed brands at a discount.

It’s also reassuring to see the company is still managed by its founders, who together own around 40% of all outstanding shares. This level of insider ownership is almost always a boon for minority shareholders as it gives management a big stake in the business but not enough to run it as a private fiefdom.

With double-digit growth, a founder-led management team and healthy balance sheet with net debt at just 0.9 times EBITDA, I’m very interested in UPGS despite its shares trading at a pricey 20 times forward earnings.

Viva la revolución

One growth share trading at a more respectable valuation is Revolution Bars Group (LSE: RBG), which runs the eponymous Revolution and Revolucion de Cuba brands. The group trades at just 13.5 times forward earnings despite analysts pencilling-in expected EPS growth of 7% and 16% for the next two years.

This level of growth looks fully attainable for the company as it grew revenue by 12.7% year-on-year to £66.7m in the six months to December and increased adjusted EBITDA by 13.6%. And while adding four new sites to take the total estate to 66 accounted for much of this growth, it was good to see like-for-like sales rise 2% in the period, suggesting customers are finding the group’s bars an attractive place to spend their paycheques.

Furthermore, with such a small estate, no net debt and operations that fully cover the expense of opening new sites, there appears to be scope to continue growing for some time. For investors who aren’t put off by the cyclical nature of the restaurant business and consumers’ incredibly fickle tastes, Revolution Bars’ shares may prove a steal at their current valuation.

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Ian Pierce has no position in any 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.

With this in mind, let’s look at two small-cap businesses, both of which release results to the market in the near future and ask whether either is deserving of your capital.

Viva la revolución!

It’s been a rather good first year as a listed company for Revolution Bars (LSE: RBG) and its shareholders. Priced at 168p 12 months ago, stock in the 66-strong premium bar operator now changes hands for 204p — a 21% increase.

Based on January’s trading update for the 26 weeks to the end of last year, I can see this kind of performance continuing in 2017. Overall sales at the Ashton-Under-Lyne-based £101m cap were 12.7% higher (at £66.6m) than for the same period in 2015. Christmas and New Year were also particularly strong with Group sales rising 16.2% over the five-week festive period. 

In H1, the company opened four new Revolución de Cuba bars in Harrogate, Aberdeen, Reading and Glasgow. A fifth — in Southend on Sea — is due to open in H2. Seemingly keen on developing its pipeline, I wouldn’t be surprised if next Tuesday’s interim results included details of new locations the business was targeting.

Trading on a price-to-earnings (P/E) ratio of 12 in 2017 (reducing to just under 11 in 2018 based on earnings estimates), Revolution’s stock carries an appealing valuation. What’s more, its low price-to-earnings growth (PEG) value of 0.9 suggests that investors won’t be paying through the nose to be a part of management’s plans to expand the business.

The 2.7% yield on offer from Revolution might seem low to some but this is projected to rise to 3% in 2018 and compares favourably to that offered by peers like J D Wetherspoon. The fact that payouts will be covered over three times by earnings leads me to suspect that dividends will continue to grow at a fair clip over the medium term. The company’s net cash position will also be highly attractive to investors keen to avoid companies weighed down by debt.

Strong cash flow

Holders of premium branded spirits and liqueur producer Stock Spirits (LSE: STCK) also enjoyed a profitable 2016 with shares finishing the year 31% higher than where they started.

Like Revolution, Stock Spirits provided an update to the market back in January. Despite “highly competitive trading conditions“, there were indications that business remained robust, particularly in Poland where the group has the second largest share of the market.

According to the company, cash flow was strong with net debt standing at around €60m. While slightly higher than 2015’s figure, this is certainly a lot less than a few years ago when debt levels were over €300m.

With sales of alcohol remaining resilient even during times of economic uncertainty, those concerned by Brexit may wish to take a closer look at the company. Exporting over 40 brands to more than 40 countries worldwide, a lack of geographical diversity isn’t an issue with Stock Spirits.

Trading on 17 times earnings for 2017, shares might be more expensive than those of Revolution Bars but this valuation compares favourably to industry peers such as Diageo (22) and Fevertree (55). While I’m inclined to wait until full-year results are announced on 8 March, it’s a tentative buy from me.

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Paul Summers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The problem however, is that rollouts can be pretty expensive. Profits often only kick-off once a rollout story becomes self-funding, or when the cash generated by its operations is greater than the capital required to open new locations. In this article I’m going to reveal three promising rollout stories and take a look at the respective funding situations.

Something Tasty For Everyone

Tasty (LSE: TAST) operates the Wildwood casual dining brand which sells a wide variety of food, though largely Italian. It aims to provide “something for everyone”, with choices that range from steaks to pizzas to risottos. It has 61 locations and expects to open a further 16 by the end of financial year 2017.

The company’s expansion is not yet self-funding, but I expect it to be so by the time it has around 95-100 restaurants. Therefore, it should reach this level in a couple of years. I believe the company could be worth well over double its current market cap in the next three or four years. The management team is top quality too. The Kaye family, the masterminds behind 10-bagger Prezzo, are leading the rollout which helps inspire confidence.

Viva la revolución

The Revolution and Revolución de Cuba bars operated by Revolution Bars Group (LSE: RBG) offer premium cocktails in a Cuban-styled setting. With an estate of 66 bars, the company is already self-funding. It spent £12.8m on rolling out new bars and upgrading old ones last year, but generated £14.2m in cash from its own operations.

The company’s 2% like-for-like sales growth isn’t all that exciting but if you include the four new sites opened last year, sales jumped 12.7%. Better yet, the company’s valuation looks rather undemanding. The PE is only 16 times last year’s earnings. For a debt-free, fast growing, self-funding roll-out with a reputable format, that seems a steal.

A Greek, an Italian and a Grill

The Fulham Shore (LSE: FUL) operates a number of London-based restaurant franchises, including The Real Greek, Bukowski Grill and sour-dough pizza chain Franco Manca. All of these franchises operate in the casual dining market, typically charging between £8 and £16 a head.

Admittedly I’m not as familiar with this company as the other two I’ve mentioned, but the Franco Manca brand is well-regarded in London. Recent financial results imply some success too, with revenue jumping 43% in the first half of this year and operating profit following suit with a 42% increase. The company says it must invest in its central operations, so I wouldn’t be surprised if margins take a little bit of a hit in the short term. The company generated £7.1m in cash last year and spent £9.3m on its estate. I believe the company will likely be self-funding in the next few years, although with a market cap of £119m, this is perhaps the most expensive rollout I’ve mentioned today.

None of these stocks look conventionally cheap, but if they can hit the point of self-funding and maintain success with their formats, I imagine future returns could be attractive.

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Zach Coffell has no position in any shares mentioned. The Motley Fool UK has recommended Tasty. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.