I was tempted too but I’m glad I never bought shares because the £63m small-cap has failed to even hit break-even, let alone replicate the outstanding results of its UK namesake. 

The company opened 13 stores in the first half of this year for a total of 48. Revenues jumped 49% over the period to £4.4m, yet this meteoric rise somehow had a negative effect on the bottom line: the company recorded a growing loss of £1.1m. 

At least the balance sheet is solid with £8.8m in cash and negligible debt. Of course, this has not been generated by operations but by a number of placings over the last few years to maintain this unprofitable rollout. I would not be surprised to see the company return to shareholders cap-in-hand again in a few years. 

Like-for-like sales were strong and have grown for 19 consecutive quarters, so perhaps one day the chain will thrive. Until I see the positive growth narrative reflected in the figures, however, I’ll be avoiding the shares. 

Beware honeyed ‘highlights’ figures 

Investors beware – highlights or adjusted figures can be very misleading. Take YouGov’s (LSE: YOU) FY17 highlights. The company reported an adjusted operating profit of £14.5m on revenues of £107m for 10.9p EPS. If we took these figures as gospel then the company trades at a P/E of 28 which would not seem unreasonable for a firm that grew revenues by 21%, all-the-while achieving a 13.6% operating margin.

If we look at the statutory figures, however, otherwise known as the actual financial results of the company, basic earnings per share come in at 4.4p – less than half the figure first presented to investors – and the operating margin is a less enticing 7%. 

The big question then, is whether or not the adjustments made are fair. The most significant adjustment was for the amortisation of intangible assets. Sometimes it is fair to adjust out amortisation, but in this case I believe it is inappropriate and does not paint a clear picture of underlying operations.

You see, the company capitalises plenty of spend each year, often including internal software development costs. This is perfectly in line with accounting practices, and is designed so costs not related to ongoing operations – such as the development of new services – do not get recorded as a cost on the income statement and therefore don’t impact profit immediately.

Usually these costs impact the income statement over time as they are amortised, smoothing out their impact. I’d therefore argue that the company’s adjusted figures shouldn’t exclude amortisation. After all, the company spends cold, hard cash on these capitalised activities practically every year and it should surely be represented somehow in these highlights.

These headline figures don’t take that into account, therefore presenting the business in a rather flattering light, in my opinion. If we value the company on its EPS of 4.4, the P/E is 69 and that, in my book, is a ludicrous price.

The post Are these the worst ‘growth’ stocks on the market? appeared first on The Twelfth Magpie.

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Zach Coffell 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.

To answer that it’s important to look at why Domino’s Pizza has been so successful in the UK. The key has been twofold: licensing out stores to franchisees, and investing in digital sales efforts and marketing campaigns that have improved organic growth for the entire estate.

The former allows Domino’s to expand rapidly by leaving the nitty gritty work of running each business up to the franchisee. This also keeps margins high. Operating margins were 23% last year, and provides high cash flow from franchisees buying ingredients and paying royalties.

The latter has been instrumental in expanding awareness of the brand and driving increased sales by emphasising the ease of online ordering. In Q3 these online sales rose 18.1% year-on-year and now represent 81% of total sales, with a whopping 64% coming from the mobile site or app.

And by increasing brand awareness Domino’s Pizza has also widened the pool of available consumers, which means more stores can co-exist profitability in the same area. This has provided the firepower for the estate to grow to 950 by the end of 2016 with a long-term target of 1,600 stores in the UK. Given all this, it’s no wonder that investors have fallen head over heels for the company’s shares.

Everything’s a bit rockier for AIM shares 

Unfortunately DP Poland faces a tougher task ahead of it. The biggest issue is that the company is still in start-up mode and is bleeding large chunks of cash. Losses in H1 2016 totalled £944k, although this is a 12% improvement on the year prior. At the end of June the company was down to £5.3m in cash, which necessitated a share placing in October that raised £3.2m. This came after the previous £5.5m share sale in June 2015, which suggests to me that current shareholders can expect further dilution of their holding as long as losses are significant.

Now, this isn’t necessarily a bad thing as long as the cash is being used to fund expansion in a sustainable manner. This certainly seems to be the case as full-year results for 2016 saw total sales rise 62% year-on-year due to 12 new store openings, taking the year-end total estate to 39. More encouraging was the 27% rise in like-for-like sales that signals Polish consumers are coming round to Domino’s.

It must be said that the company has expanded rapidly previously before, needing to scale back once new stores proved untenable. The good news is that management has learned from these mistakes, is leaning more on the franchisees who run 23 of 39 locations and is mimicking its UK counterpart and investing heavily in mobile sales and building brand awareness. This appears to be working as my Polish friends in Warsaw certainly buy their pizzas through Domino’s. If losses continue to shrink and growth rates keep steady there’s no reason this tiny £75m market cap company can’t rise 150% in five years.

But is DP Poland the best share to buy right now?

The post Can DP Poland plc repeat the 150% returns of Domino’s Pizza Group plc by 2022? appeared first on The Twelfth Magpie.

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• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Ian Pierce has no position in any shares mentioned. The Motley Fool UK has recommended Domino's Pizza. 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 scenario of market enthusiasm post-IPO, followed by disappointment if there’s a setback, isn’t uncommon with new companies on AIM. However, fundamentally sound businesses come through in the long run. Six years on from flotation, I reckon DP Poland is now looking an interesting proposition for investors.

Long growth runway

In half-year results announced this morning, management said store opening momentum continues to build, with six stores opened in the year-to-date, taking the total to 29 stores. Strong like-for-like performance of existing stores (+28%), plus the contribution of new stores saw total retail sales (corporate and sub-franchised locations) up by 57% from H1 2015.

A rapidly growing store estate requires considerable investment in property and people, and DP Poland will be lossmaking for some years yet as a result of this upfront investment. This is a normal situation for a franchise rollout from scratch. In time, costs reduce as a percentage of sales and the company starts generating profits.

Generally speaking, I’m not too enamoured of lossmaking businesses. However, Domino’s Pizza has proven itself to be a highly successful brand in many countries and the indications are that Poland will be no different. The company’s annualised revenues are currently under £6m, and with Poland’s population of 38.5m there a long growth runway ahead based on Domino’s revenue per capita in more mature markets.

On this basis, I don’t see a current valuation of 11 times sales at a share price of 50p as prohibitive for long-term investors.

Market-beating growth

In contrast to DP Poland, Dairy Crest (LSE: DCG) is a long-established and profitable food business. The company, which completed a transformational sale of its dairies operations at the back-end of last year, is now focused on food products, led by its four key brands of Cathedral City cheese, Country Life butter, Clover spread and Frylight cooking spray.

In a trading update released this morning, the company said it expects to report a “good performance” for the first half of the year, and that the outlook for the full year remains unchanged.

Country Life, Clover and Frylight are showing strong volume growth and increasing market share. Management expects a small volume decline from Cathedral City but an improved margin as it has chosen to discount less than competitors to maintain the brand’s premium positioning during the period.

Management reckons that as “a strong branded and added value business, Dairy Crest is well placed to deal with inflationary pressures.” City analysts agree and have pencilled-in earnings growth of 13% for the company’s financial year ending March 2017.

Dairy Crest’s price-to-earnings ratio is 16.4 at a current share price of 640p, and the forecast dividend gives a yield of 3.6%. This is a highly focused business relative to a global diversified brands giant such as Unilever. But focusing on a few things and doing them very well isn’t a bad strategy and can deliver market-beating growth. Dairy Crest looks set to do that, and I reckon the earnings multiple and dividend yield represent decent value.

The post 2 food stocks that could be star buys after today’s news appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

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