Today, I’m looking at two dividend stocks I think could make good choices for long-term dividend growth.

Out of favour

Shares of car dealership group Cambria Automobiles (LSE: CAMB) have lost 25% of their value over the last two years as new car sales have slowed, placing profits under pressure.

Today’s half-year figures from Cambria show the impact of this decline. Revenue fell by 4.5% to £295.1m during the six months to 28 February, while underlying pre-tax profit was 14.3% lower, at £4.8m.

Protecting profits

The group is still very profitable and delivered a return on equity of 17.4% during the first half. The board is taking steps to protect the business from a downturn by focusing more heavily on premium brands, such as Lamborghini and McLaren.

This is helping to improve the profitability of each car sold, as more expensive cars generally carry higher profit margins. A stronger focus on used car sales and aftersales is also helping to protect profits.

Although used car sales fell by 0.8% on a like-for-like basis during the half year, profit per car rose by 7.3%. In aftersales, like-for-like revenue rose by 6.1%, generating a gross profit of £13.7m. That’s more than new car sales (£9.7m) or used sales (£11.8m).

A contrarian choice for income?

It’s difficult to know when it’s the right time to invest in a falling market. It may be too soon to buy car dealers, but I think that Cambria could be an attractive choice for long-term investors.

Although the forecast dividend yield of 1.6% is low, it should be covered seven times by earnings. This reduces the chance of a cut and leaves plenty of room for future growth when conditions are more favourable.

Profits are expected to fall by 18% this year, before starting to recover in 2018/19. With the stock on a forecast P/E of 8, now could be a good time to start building a position.

A high yield alternative

If you’re attracted to car dealers’ low valuations but need a higher dividend yield, one alternative is Marshall Motor Holdings (LSE: MMH).

This £130m company has so far managed to buck the trend of falling profits. Underlying pre-tax profit at the group rose by 14.4% to £29.1m in 2017. The group also used £42.5m from the sale of its leasing business to help reduce net debt, from £119m to just £2.2m.

This confident performance supported a 16.4% increase in the dividend, which rose to 6.4p per share last year. At the last-seen share price of 169p, that’s equivalent to a dividend yield of 3.9%. That’s quite high for a small cap.

A second attraction is the group’s large property portfolio. According to Marshall’s 2017 results, it has £116.3m of freehold and long leasehold property. That’s equivalent to around 150p per share, which covers 89% of the current share price.

Like Cambria, Marshall makes more profit from aftersales than new car sales. One appeal of this is that even if new car sales slow, aftersales profits from cars under warranty should remain strong for several years.

Although the automotive sector isn’t without risk at the moment, these shares do seem cheap to me on just 7.1 times forecast earnings. I believe this could be a buying opportunity.

The post Income investors: 2 dividend growth stocks I’d buy and hold today appeared first on The Twelfth Magpie.

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• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of Cambria Automobiles. 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.

Fans of the stock, including fund manager Neil Woodford, are probably relieved. But is now the right time to be buying, or should shareholders think about locking in some profits?

The good news

The only part of the group’s business that’s operating profitably at the moment is its UK division. UK sales rose by 118% to £39.9m during the first half of the group’s current financial year, lifting the division to an operating profit of £3.2m.

The company’s other operating divisions (USA and Australia) are still operating at a loss, but that’s to be expected as they’re still in the early stages of development.

This is why I’d sell

Purplebricks has faced questions about its business model and accounting, but in my view the most serious concern for investors is the firm’s valuation. The shares currently trade on 14.5 times sales and a whopping 247 times 2018/19 forecast earnings.

Property portal Rightmove also trades on about 15 times sales. But it has an operating profit margin of more than 70%. Purplebricks’ operating margin in the UK was 8% during the first half of its current financial year. Overall, it made a loss.

The costs of rolling out Purplebricks’ business model appear to be considerable. Administrative costs in the UK rose by 144% during the first half of last year, even though sales only rose by 118%. Remember, although it has no branches, it still has lots of local agents.

I don’t think that it will ever enjoy the kind of profit margins achieved by Rightmove. In my view, the group’s current valuation leaves little room for further gains and means that shareholders have no protection against any kind of disappointment.

Although this may be a great business, I’d rate the shares as a sell at current levels.

One consumer stock I’d buy

If you’re looking for investments with exposure to the UK economy, I believe car dealership group Cambria Automobiles (LSE: CAMB) could be a more interesting opportunity.

The firm’s shares edged lower today after it released a year-end trading update. Like-for-like new car sales fell by 14.6% during the five months to 28 February, but some of this decline was offset by flat used car sales and a 6.1% increase in like-for-like after-sales.

It’s important to remember that new car sales are the least profitable part of a dealership business. After-sales is by far the most profitable activity.

Taking a stronger position

One way to improve the profitability of a car business is to head upmarket, where volumes are lower and margins are higher. And where after-sales are very expensive indeed.

That’s what Cambria is doing at the moment. Over the last five months, the firm closed two body shops, plus Honda, Alfa Romeo and Jeep dealerships. To replace these, it’s opened two Bentley dealerships, a McLaren showroom and — shortly — a Lamborghini operation.

The shares look cheap to me at the moment, on just eight times forecast earnings. Although the outlook for the new car market remains uncertain, Cambria’s £63m market cap is supported by £49m of fixed assets and a net cash balance. In my view, this could be a relatively low-risk buy at current levels.

The post Why I’d sell Purplebricks Group plc to buy this unloved small-cap stock appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

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

However, many believe the company deserves this low multiple because it operates in a highly cyclical industry. 

Today’s full-year results from the company show just how cyclical the business is.  

After reporting a record operating profit of £12.4m last year, operating profit declined by 4.8% for the year to 31 August. Even though revenue for the period rose by 4.9%, most of this growth came from the group’s aftersales division, which reported revenue up 9%. New vehicle sales declined 11.7% in the period, while used vehicle sales slid 6.1%. Overall, earnings per share dropped 0.9%. 

As bad as it seems? 

Many City analysts believe there’s more pain ahead for the UK car sales industry. 

Indeed, analysts expect falling consumer spending coupled with high levels of debt (the UK borrowed a record £31.6bn in 2016 to buy cars) will mean customers delay purchases or upgrades. 

To a certain extent, these concerns have become reality. Cambria’s results show that new car sales are falling. Nonetheless, sales are falling off a high base. 

For example, even though new car registrations are projected to fall by 4.5% for the full-year to 2.57m, this number is still 10% above the mean average of 2.35m for the past 17 years — according to Cambria’s data. 

This is why I’m positive on the outlook for the company. Even though the market seems to have written off the business, the current operating environment does not seem to be as bad as its valuation suggests. 

Also, Cambria has a record of creating value for shareholders, and even though the car market is coming off the boil, I expect this to continue. 

Creating value for shareholders 

I believe that its value lies on its balance sheet. Over the past seven years, the company has grown book value per share from 19.5p to 50p as reported for the year to August 31, a compound growth rate of 17%. Of the total 50p per share, £45.2m is freehold property, which is funded with £17m of debt. There’s also £23m in cash giving net cash of £6m. In other words, the balance sheet is rock solid. 

With a market value of £62m and a book value of £50m, the market is ascribing almost no value to the underlying business. 

What about the outlook

So, Cambria looks cheap but what about the group’s outlook? 

Well, falling car sales is a concern, however, right now the stock is priced for the worst case scenario. Around half of the firm’s outlets sell luxury vehicles, which tend to be less sensitive to cyclical trends. Then there’s also the aftersales division to consider. Even though aftersales is only 11% of the total revenue mix, it accounts for 38% of group gross profit. 

All in all, even though the business environment might get tougher for Cambria, the company won’t vanish overnight, and while the firm is facing headwinds right now, over the next decade, growth should return, and in the meantime, shareholder equity should continue to grow.

The post 1 growth stock I’m holding for the next decade appeared first on The Twelfth Magpie.

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• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Rupert Hargreaves owns shares of Cambria Automobiles. The Motley Fool UK owns shares of Cambria Automobiles. 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.

It’s the group’s second profit warning in two months and looks serious to me.

In an accompanying statement, Safestyle said that the group’s order intake has fallen faster than expected since July. As a result, management expects to see “a material impact on full year profits”.

Is there any good news?

However, there doesn’t seem to be any company-specific issues here. Safestyle is the market leader in its sector and has been highly profitable and cash generative over the last few years. It’s also worth noting that the company reported a net cash balance of £13.4m at the end of last year, with no debt. So it seems unlikely to experience financial distress.

The problem appears to be a reduction in consumer spending. According to the latest statistics from trade body FENSA, the company noted installations of replacement doors and windows fell by 18% in June and July, compared to last year.

As a result, full-year revenues are now expected to be flat on last year, while profits are expected to be significantly lower. This is a big setback, considering that analysts’ forecasts until today were showing profit growth of about 11% this year.

After today’s fall, I estimate that this stock trades on a P/E of perhaps 10. There was no word on the dividend in today’s news, but if it’s not cut it would offer a yield of 7%. However, I suspect the shares will get cheaper before they start to recover. I’d stay away for now.

Is this the next big profit warning?

Car dealership group Cambria Automobiles (LSE: CAMB) recently reported a 21.7% rise in underlying half-year profits. It appears to be well financed with strong free cash flow, and trades on a forecast P/E of just 7. So what’s the problem?

Cyclical stocks like this often look cheapest when they’re near the top of the market. These low P/E ratios are common when the profits are close to a peak, and the market is pricing in a downturn.

In my view, there are several reasons to be cautious about investing in car dealers. UK new car registrations fell by 2.4% during the first eight months of the year, and by 6.4% in August alone.

According to Cambria’s latest trading statement, the group’s own like-for-like new vehicle sales fell by a staggering 17.6% during the 11 months to 31 July. It seems clear to me that the market is weakening.

I believe that’s why most of the major car manufacturers have now rolled out scrappage and ‘deposit contribution’ offers. Essentially, these are just sales tools to encourage owners of older cars to trade up and buy a new car, rather than another used one. Their purpose is to boost volumes at the expense of lower profit margins.

Although car dealers make most of their profits on aftersales and used cars, if new car sales fall, the pipeline of future aftersales work will shrink. In my view, now is not the right time to put money into this sector, however cheap it might seem.

The post Is this value dividend stock a falling knife to catch after dropping 25% today? appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of Cambria Automobiles. The Motley Fool UK has recommended Safestyle UK. 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.

But despite this growth, investor concerns about the state of the motor trade sector have weighed on the firm, and as a result, the shares have underperformed. Specifically, over the past 12 months shares in Cambria have declined by 15% excluding dividends. 

Cheap valuation 

After these declines, the shares are trading at a highly attractive forward P/E of 6.7 and City analysts expect the firm to grow earnings per share by a steady 5% this year. According to a trading update from Cambria this morning, it looks as if it is on track to meet this target with management reporting “trading for the 11 months to 31 July 2017 is in line with expectations.” Even though new vehicle sales declined during the period by 17.6% on a like-for-like basis, after-sales operations increased revenue by 8.4% and used vehicle sales fell only 1.7%. 

Against this backdrop, gross profit per retail unit improved, increasing overall profitability. Throughout the year, Cambria has also pushed ahead with the acquisition of new sites and the development of old sites in its portfolio, which should help drive organic revenue growth as overall new car sales slow. 

All in all, considering Cambria’s valuation and steady growth, the company looks to be a hidden small-cap star to me. 

Rapid growth 

As Cambria has floundered, Gear4music (LSE: G4M) has charged ahead. Over the past 12 months, shares in the company have gained 372% as sales have exploded. 

According to an update from the group today, in the latest half year, revenues expanded 44% with UK revenues rising 30% to £17.9m and Europe sales rising 70% to £13.3m. According to Andrew Wass, chief executive, this growth has put sales figures ahead of expectations with the total of £31.2m equating to a two-year increase of 150%. This increase has come at a cost, however. Today’s trading update warned that although sales were ahead of expectations, “increased costs and restricted short-term margins” are holding back profit growth. 

Still, as a long-term growth play, Gear4music remains attractive. Every company has to spend money to drum up interest in its products and services, it’s just a natural part of doing business and margins will suffer. Nonetheless, in the long run, the spending should pay off in the form of higher sales and faster sales growth. 

Gear4music’s growth is only just getting started, and even though the shares trade at a high earnings multiple of 79.5, I believe over the long term that the company will grow into this valuation. City analysts have pencilled in earnings per share growth of 31% for the fiscal year ending 28 February 2019 on revenues of £102m, up around 50% year-on-year. 

The post 2 hidden small-cap stars I’d buy today appeared first on The Twelfth Magpie.

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• Forget meal deals! Here’s how £8 a day could be worth £357,000
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• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Rupert Hargreaves owns shares in Cambria Automobiles. The Motley Fool UK owns shares of Cambria Automobiles. 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.

Companies that can compound wealth year after year have been dubbed ‘compounders’ by investing gurus such as Warren Buffett and they can generate huge returns for investors over time. Warren Buffett’s Berkshire Hathaway is considered to be the world’s best compounder, having grown book value per share at a mid-teens percentage rate every year since inception.

But Berkshire isn’t the only company in the world that has been able to produce an enormous amount of wealth for investors by compounding.

A mission for returns 

Motor dealer Cambria Automobiles (LSE: CAMB) is on a mission to generate returns for investors. Since 2011 the company has compounded book value at a rate of 16.7% per annum as its low investment, high return model has allowed management to pay down debt and reinvest cash generated from operations into expansion.

Today the company reported interim results for the six months ended 28 February, which show a continuation of its historical performance. Rolling 12 month return on equity remains high at 22% and at the end of the period the company had net cash of £3.3m. A strong balance sheet has given management confidence to hike Cambria’s interim dividend by 25%.

However, despite these impressive performance figures, shares in Cambria trade at a discount valuation. At the time of writing, Cambria trades at a forward P/E of 8.3 and an EV/EBITDA ratio of 4.9, which is around half of the industry average. This valuation seems unwarranted because Cambria is one of the most productive public companies trading in the UK today. Only 10% of all the public companies in Britain currently produce a return on equity of more than 22%.

All in all, Cambria is one of the most profitable businesses in this country, and it also seems one of the most undervalued.

Brexit worries

Like Cambria, Staffline (LSE: STAF) has also been able to compound shareholder equity at a steady, attractive rate over the past five years, thanks to a market-leading return on equity. 

Since 2011, Staffline’s book value per share has grown at 14.5% per annum and last year the group achieved a return on equity of 19.1%. Nonetheless, despite these impressive metrics, shares in Staffline are trading at a discount valuation, a forward P/E of 10.1. 

It seems investors are worried about Staffline’s reliance on European workers and how the company will deal with this exposure during and after Brexit. Analysts appear concerned as well as, after the firm growing earnings per share by 200% during the past five years, the City is predicting earnings growth of only 1% for this year followed by 5% for 2018. 

Still, even if these forecasts prove true and growth slows to a crawl, Staffline shouldn’t lose its ability to be able to compound shareholder wealth as return on equity will remain elevated.

The post 2 top ‘compounders’ trading at discount valuations appeared first on The Twelfth Magpie.

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• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Rupert Hargreaves owns shares of Cambria Automobiles. The Motley Fool UK owns shares of Cambria Automobiles. 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.

Maintel Holdings

Communications specialist Maintel Holdings (LSE: MAI) is growing at a phenomenal rate. It specialises in the sale and installation of telecommunications systems and services to the enterprise business sector, delivering complete end-to-end solutions delivered on-premises or via the cloud.

Through a combination of organic growth, and key acquisitions, Maintel has enjoyed revenue growth of a stunning 49% per year over the last five years, and earnings have increased from 23p per share to 47p per share in this time. And with earnings set to soar 89% in FY2017 to 89p per share according to analysts’ estimates, the stock trades on a forward looking P/E ratio of just 10.4 at present, an undemanding multiple given the company’s growth history.  

Recent results were impressive, with revenue surging 114% after the “transformational” acquisition of Azzuri, although investors should note that organic revenue growth was only 1%. Adjusted profit before tax rose 52% and the dividend was increased 5%, taking the yield to 3.3% at the current share price.  

Bears will point out that debt has increased significantly after the Azzuri acquisition, with the debt-to-equity ratio now standing at 109%. However management recently stated that debt of 1.6 times adjusted EBITDA is “comfortably ahead of board expectations.”

CEO Eddie Buxton was upbeat about the company’s prospects for 2017 in March, stating that “the combination of an enlarged customer base and the broader technological platform positions Maintel well for an exciting growth trajectory in the cloud environment and we look forward to 2017 with cautious optimism.”

As a result, with the company’s market cap still a small £131m, it appears that Maintel offers value for a company well-placed to continue growing.

Cambria Automobiles

Another smaller company that looks to offer compelling value right now is Cambria Automobiles (LSE: CAMB), the owner of 50 car dealer franchises across the UK. Its business strategy is based around acquiring underperforming dealers, and management has a strong track record of improving these dealers’ profitability. The company also enjoys multiple revenue streams, as not only does it sell cars, but it also services them. 

Cambria has enjoyed robust growth in recent years, with revenue and earnings growing 12% and 25% per year over the last five years. The company also sports a high return on equity of around 24%. However, despite these impressive numbers, it trades cheaply on a forward P/E ratio of a low 8.1, and an enterprise value-to-sales ratio of just 0.11.

The shares spent most of 2016 trending down, which is not surprising given the Brexit-related uncertainty surrounding UK-focused companies. But more recently, the stock has formed a series of ‘higher lows’ and appears to be breaking out of the downtrend.

A trading update for the five months to the end of February was positive, with management stating that trading in the period had been “substantially ahead” of a year before. With the stock up 12% year-to-date, perhaps investors are finally catching on to the fact that Cambria is a fast-growing company trading at a dirt-cheap valuation.

The post Two high-flying growth stocks trading at bargain valuations appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK owns shares of Cambria Automobiles. 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.

Carpetright was last 7% lower after advising that “we have experienced tougher trading conditions over the last three months,” mirroring the misfortunes of much of the home improvement segment. And disappointingly the retailer noted that “the level of sales growth in our final quarter leads us to expect that full-year profits will be towards the lower end of the current range.”

The Essex business estimates pre-tax profits for the year to April 2017 at between £13.9m and £16.2m.

Carpetright saw like-for-like sales growth of 1.4% in the 12 weeks to April 22, cooling from the 1.9% rise printed in the prior quarter and down from growth of 1.7% in the corresponding 2016 period.

And while the carpets colossus has accelerated its store refurbishment programme to encourage customers through the door (Carpetright overhauled 188 outlets by the end of the quarter, beating its prior target of 150) this is likely to provide only token relief as inflation aggressively picks up.

Indeed, latest Office for National Statistics data showed British retail sales fall 1.4% during January-March, the first quarterly drop since 2013. The body’s consumer price inflation gauge currently stands at three-and-a-half-year peaks of 2.3%.

City brokers had been expecting Carpetright to bounce from a predicted 13% earnings decline in the current fiscal year with a 15% rise in 2018. But signs that recent sales weakness is intensifying could lead to swingeing downgrades beyond the outgoing year’s estimates.

So while it deals on a P/E ratio of 12.3 times for the upcoming year, a very attractive reading on paper, this is still not low enough to offset the probability of heavy forecast cuts in the near term and beyond as the UK high street struggles.

Poised to reverse?

And of course rising inflation is likely to dent shopper appetite for particularly expensive goods like cars, making me extremely bearish over Cambria Automobiles (LSE: CAMB) in the coming months.

Exploding car demand has seen the retailer enjoy double-digit earnings growth during the past few years. Total British sales hit a record 2.69m units last year, according to the Society of Motor Manufacturers and Traders, and latest data has showed momentum still picking up steam. Indeed, sales in March surged 8.4% to 562,337.

But last month’s gallop can be put down to shoppers piling in before new vehicle excise rules kicked in during April. And with an economic slowdown appearing likely, and windscreen prices set to rise as manufacturers pass on the impact of sterling weakness, I reckon sales are likely to stall from spring onwards.

Reflecting these more difficult conditions, the City expects Cambria to endure a rare 1% earnings fall in the year to August 2017. Although this still leaves the retailer dealing on a cheap P/E multiple of 8.5 times, the chances of a prolonged downturn would encourage me to steer well clear.

The post 2 retail stocks I reckon could dive appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of Cambria Automobiles. 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.

Cambria recorded growth in the second half of the year, which mirrored its strong performance in the first half. And it said trading in the first 11 months of the year was substantially ahead of the same period from the prior year on both a total and like-for-like (LFL) basis.

For example, new vehicle unit sales were up by 11% (3.8% on a LFL basis), with gross profit per retail unit increasing year-on-year. Similarly, used vehicle sales rose by 4.4% (2.6% on a LFL basis) and gross profit per unit continues to increase. Meanwhile, Cambria’s after-sales operations saw profitability increase by 3.7% versus the corresponding period (flat on a LFL basis).

Cambria’s recent acquisitions are performing well and have been successfully integrated into the wider business. Its new car order book is building well and in line with its expectations ahead of the important September trading period. And with Tim Duckers having joined the board as managing director of the motor division, Cambria is well placed to deliver impressive earnings growth.

On this topic, Cambria is forecast to increase its earnings by 16% in the current year. This puts it on a price-to-earnings growth (PEG) ratio of just 0.4, which indicates that it offers excellent value for money. Compared to a large-cap consumer sector peer such as Diageo, this low valuation has huge appeal. Diageo has a PEG ratio of 1.4 which, while appealing in its own right, indicates that there’s less upward rerating potential than is the case for Cambria.

Diversified offer

Of course, the main reason for this is the differing risk profiles of the two stocks. In Diageo’s case, the company offers a hugely diversified investment opportunity, with the drinks giant having a wide geographical spread and a range of products that are able to provide consistency and stability. Furthermore, Diageo has superb cash flow and excellent long-term growth potential thanks to its exposure to fast growing beverages markets such as China and India.

On the other hand, Cambria is much more reliant on the UK economy for its growth. Brexit brings a degree of uncertainty and with car sales being highly cyclical, they could be negatively impacted by the potential difficulties Brexit may bring. However, with a loose monetary policy likely to stay and Cambria trading on such a low valuation, I think it’s worth buying for the long term.

That said, based on the risk/reward ratio, Diageo seems to be the better buy right now. It offers much more stability and consistency than Cambria, while also having the potential to deliver index-beating performance over a long period.

The post Can you afford to miss this consumer stock after today’s results? appeared first on The Twelfth Magpie.

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

Cambria’s underlying pre-tax profit rocketed 40.1% higher to £4.6m during the first half of the year, thanks to a 14.7% rise in sales and to big increases in profit margins on new and used cars.

On the face of it, Cambria shares look cheap. Before today’s results, earnings per share were expected to rise by 30% to 7.9p this year. This figure is now likely to be upgraded — I’d estimate that perhaps 8.5p per share is likely. This puts Cambria on a modest forecast P/E of about 8.8.

However, you need to remember that Cambria is a cyclical stock. New car sales have been fuelled by very cheap credit and may now be close to a cyclical peak. Although this is a risk, to some extent it’s offset by Cambria’s strong aftersales business. Servicing and repairs carry a much higher profit margin than car sales, and generated 40% of the group’s gross profit during the first half.

Overall, I think it’s probably too soon to sell Cambria. Further gains are possible.

High-risk banking

I’m not so sure about Standard Chartered (LSE: STAN), where the outlook remains as uncertain as ever. Although the bank’s bad debt problems don’t yet seem to be as serious as we feared, things could still get worse. Standard Chartered is heavily exposed to China, India and the commodity market.

The real problem is that there’s simply no way of knowing what will happen. City brokers have continued to slash their earnings forecasts for the firm in recent months. A year ago, Standard Chartered was expected to report earnings of $1.49 per share for 2016. Today, the forecast is for earnings of $0.30 per share — 80% less.

This high level of uncertainty means that while Standard Chartered shares could certainly deliver a 30% gain if things turn out well, they may also fall by another 30%. As a shareholder myself, I’m considering cutting my losses to avoid the risk of further falls.

Acquisition should boost earnings

Services firm Adept Telecom (LSE: ADT) has risen by 50% over the last year. The shares rose by 3% this morning after Adept announced the £3.5m acquisition of Comms Group, a similar UK firm.

Adept expects the acquisition to be “immediately earnings enhancing”, which suggests to me that broker profit forecasts for the current year may now be upgraded.

Comms generated an operating profit of £0.8m for the year to 31 March. I expect Adept’s operating profit to be £3m-£4m for the same period, so the Comms contribution to this year’s results should be meaningful.

Adept shares currently trade on about 14.5 times 2016/17 forecast earnings and offer a prospective yield of 2.7%. I think it’s reasonable to assume that both Adept and Comms Group will generate similar profits to last year, plus additional organic growth. On this basis I’d rate Adept as a buy, as I think the shares could quite easily rise by another 30%.

The post Are 30% gains on offer at Cambria Automobiles plc, Standard Chartered plc and Adept Telecom plc? appeared first on The Twelfth Magpie.

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Roland Head owns shares of Standard Chartered. 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.