The company has been rolling out its café/bars/restaurants across the UK for more than two decades, and operating conditions have been improving recently.

Today’s (9 July) full-year results report contains many positive figures, with year-on year earnings up by just over 30%. However, judging by the outlook statement, the expansion programme may have much further to run. So the stock may make a decent long-term investment from where it is now.

A decent growth runway

Chairman and co-founder Alex Reilley said the company has a pipeline of sites to open in the current trading year and beyond.

Cash and earnings are flowing in, and borrowings look manageable. So the firm is well placed to take advantage of favourable lease terms negotiated with struggling landlords.

The economic troubles of recent years have taken their toll on many businesses, and that means Loungers has a good choice of new venues at good-value rates. In one example, Reilley said bank closures are providing the firm with “excellent” prime pitch locations in towns and suburbs and they are often “wonderful” buildings.

Loungers operates three brands. Cosy Clubs targets large towns and city centres, while Loungers serves smaller secondary locations in high streets and market towns. The third brand is Brightside, the firm’s new roadside restaurant chain established in 2022.

Chief executive Nick Collins said the company opened 36 new sites overall in the trading year to 21 April 2024, and closed one. The pace of expansion is brisk. The firm now has around 250 venues, the majority of them branded Loungers.

Collins said the improving macroeconomic environment, falling interest rates and declining inflation are all good for the business. In the longer term, Collins thinks aiming for 665 sites overall is a “conservative” target.

Succeeding where others aren’t

If that goal proves to be achievable, shareholders could enjoy a happy journey ahead. But there are risks, of course.

I can’t help but compare the success of Loungers with the underperformance of Tasty — the Wildwood restaurant chain owner. The contrast demonstrates how critical it is for a hospitality business to give customers what they want.

One of the main risks for Loungers’ shareholders is the company may one day drop the ball, causing its brands to lose popularity.

Another risk is valuation. As growth stories become known, investor speculation tends to push up a firm’s rating. The Loungers share price has been buoyant in the lead-up to today’s bumper figures.

With the stock near 286p, the forward-looking earnings multiple is running at just over 20 for the current trading year. However, that rating is set against City analysts’ expectations for another advance of almost 30% in earnings this year. Although such high growth rates may not happen every year.

On balance, and despite the risks, I’m keen to carry out further research here. My aim is to watch the shares and consider buying a few at opportune times to hold for the long term.

The post I’ve moved this stock to my potential buy list after a 30% rise in earnings appeared first on The Motley Fool UK.

So without further ado, here are two UK shares I would buy in August. 

Reopening stocks

The first company is the pub operator Young & Co’s (LSE: YNGA). I would buy this firm over its competitors because it offers a premium offering with a London focus.

Initial figures seem to suggest that consumers are spending their lockdown savings on more premium products. Young’s could benefit from this trend. 

According to its latest trading update, consumers are not waiting around to get back into the pub. In an update issued ahead of the company’s annual general meeting, management noted that sales for the 13 weeks to 12 July were 95% of pre-Covid-19 levels.

“Significant pent-up demand,” helped drive sales growth across the group, according to the update. 

With sales already running at 95% of pre-Covid-19 levels, I think there is a good chance the recovery will continue into August.

However, it is unlikely to be plain sailing for the pub operator as we advance. The hospitality industry is currently experiencing disruption as many staff are being asked to self-isolate. Operators like Young’s are also struggling to find enough staff in the first place. 

Still, despite these challenges, I would buy the stock for my portfolio of UK shares in August. 

Hospitality UK shares

The other company I would buy for my portfolio in August is Loungers (LSE: LGRS). 

This group, which operates 173 cafes and bars across England, is also reporting strong growth from pent-up demand. Like-for-like sales for the four weeks to the 13 June were up 26.6% compared to the same period in 2019. 

The company has also used downtime over the past 16 months to increase its portfolio. It has opened a total of eight new sites since the beginning of the pandemic, which should help support the group’s overall recovery in the months and years ahead. 

All of the above suggests to me that barring another lockdown, the firm could be on track to report a robust trading performance in the second half. 

Once again, while Loungers looks to be firing on all cylinders, the group may face some challenges as we advance. Like Young’s, the company may be experiencing staffing pressures, and it may have to deal with higher costs. The cafe and bar industry is also highly competitive, which suggests Loungers needs to keep investing in its product, or risk being left behind. 

Even after taking this risk into account, I would buy the company for my portfolio of UK shares in August, considering its recovery potential. 

The post 2 UK shares to buy in August appeared first on The Motley Fool UK.

I reckon they’re both good businesses. But after such strong gains, are they still cheap enough to buy for my portfolio?

Put on the Warpaint

Cosmetics firm Warpaint London (LSE: W7L) floated on London’s AIM market late in 2016. The company — whose brands include W7 and Technic — initially performed well, but its expansion stumbled, and the stock slumped.

Warpaint’s share price fell from a high of over 265p in late 2018 to hit a low of just 35p last year. The stock has rebounded to around 123p, but long-term shareholders are still in a hole.

Normally, I’d probably dismiss this as an overhyped IPO. But in this case, I think there are reasons to believe this could be a decent growth stock.

One attraction for me is that founders Sam Bazini (CEO) and Eoin Macleod (managing director) each own 25% of the stock. Their interests should be aligned with those of shareholders. I guess they’ve also learned lessons from the firm’s post-IPO problems.

Another attraction is that last year’s performance was better than I might have expected. Despite the months of lockdown, sales for the full year are expected to have fallen by less than 20%. Warpaint has also made progress expanding its distribution channels through Tesco, Amazon and the Five Below store chain in the US.

Although I feel positive about this growth stock, I can’t rule out further problems. I don’t yet know how well Warpaint’s profit margins will recover, nor if sales can continue growing once the reopening boost wears off.

Another risk is that budget brands such as these aren’t always long-lived. More popular alternatives may spring up.

Even so, I think Warpaint looks reasonably valued on 13 times 2021 forecast earnings. There’s also a useful 3% dividend yield. I’m tempted to take a closer look.

A growth stock for the reopening trade?

Prime minister Johnson has been pictured in the papers this week having his first post-lockdown pint. He’s not alone. This should be good news for my second pick today, café/bar operator Loungers (LSE: LGRS).

Loungers has proved a popular growth stock since its flotation in 2019. Although I’ve yet to visit one of the company’s Lounge or Cosy Club outlets, I’m told they’re well run and popular.

The company reopened 47 sites on 12 April and plans to open the remainder of its English sites by 17 May. Including some locations in Wales, the company expects to have 172 sites open by 26 May.

This business is in expansion mode and expects to return to opening 25 new sites each year in 2022.

The only problem I have with this growth stock is the price. At current levels, Loungers’ shares are actually higher than they were before the pandemic. That looks expensive to me, given that the firm issued new shares and took on extra debt last year.

I like the look of Loungers, but I think reopening gains are already priced into the stock. It’s too expensive for me today.

The post These UK growth stocks have tripled in a year: should I buy now? appeared first on The Motley Fool UK.