A lot to like

The firm’s shares appear in the both the Neil Woodford Equity Income fund and his Income Focus Fund. My assumption is that he picked the company for its ability to pay and grow its dividend, which is a stock picking method he publicly fleshed out some time ago. And why not? There’s a lot to like about the company including its debt-free balance sheet and a business model that generates strong free cash flow conversion.

The enterprise generated revenue of €86.7m during 2017, 60% of which came from Europe, 21% from Oceania and 19% from the Americas. There’s no denying that Hostelworld has more than just a toehold in its focused market and the shares did well last year, rising around 64% since January 2017. But has the growth story got further to run or will other platforms eat into the firm’s lunch? Apart from specialising in a narrow sector, the company doesn’t appear, at first glance, to enjoy much of an economic moat to protect the business from other booking agencies that could easily poach traffic in the hostel sector.

An efficient business model

However, I don’t think we should underestimate how convenient it is for young travellers to go to one booking platform knowing that most hostel options will be presented in an easy-to-use format. The firm’s “simple and comprehensive” online mechanism provides a shop window for hostels and other budget accommodation and an efficient way for customers to make a booking. Hostelworld pockets the deposit and that’s what makes up the firm’s revenue.

Agents of all kinds usually run efficient and profitable business models like this that simply skim off part of the turnover of a transaction between customer and end provider, and it’s a major part of their attraction. There’s no need for agents like Hostelword to get involved with the nuts and bolts of actually providing the end service, but the firm can’t add value to any transaction without providing a top-notch user experience, which demands a strong focus on technology.

Maintaining an edge

A new development centre in Porto, Portugal, aims to increase the “pace and volume”of new product features and functionality for customers and hostel providers. The company also pilot-launched a new free cancellation booking option in February, which “resulted in a noticeable increase in conversion and booking levels.” Such initiatives demonstrate how the firm is working to keep its competitive advantage in the hostel market, which is estimated to grow around 5% a year until 2020.

City analysts following the firm expect earnings to contract 4% this year and to expand by 6% during 2019. Meanwhile, at today’s share price around 371p, the forward price-to-earnings ratio for 2019 is just over 18 and the forward dividend yield sits close to 4%. I think the valuation looks fair, as long as Hostelworld keeps winning market share by remaining ‘hip and relevant’ with young travellers. So far, there’s every reason to expect it will.

The post Should you pile into this Neil Woodford growth pick? appeared first on The Twelfth Magpie.

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Kevin Godbold 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.

Market day

Shares in direct marketing specialist 4Imprint Group (LSE: FOUR) have continued to climb to fresh record highs in recent days. And this comes as little surprise to me as organic growth is exploding — the company has seen revenues and orders leap 15% in the first four months of the year.

With huge infrastructure expansion also bolstering the firm’s sales outlook, the City expects earnings at 4Imprint to gallop 27% higher in 2016. And an extra 13% advance is forecast for next year.

Consequently a slightly-toppy P/E rating of 20.6 times for the current period slips to a much-improved 18.6 times for 2017. And I expect the multiple to keep on toppling looking ahead.

Tool up

Tool hire specialist HSS Hire Group (LSE: HSS) has ploughed vast sums into expanding its branch network and hoovering up specialist businesses to bolster its revenues outlook. And these measures are clearly paying off handsomely as HSS printed sales growth of 10% during 2015, outstripping the rental market average of 1.5% by some distance.

The number crunchers expect earnings at HSS to more than double in the current year, resulting in a P/E rating of 17.6 times. And the multiple falls to just 10.6% for 2017 thanks to an anticipated 58% bottom-line improvement.

And a sub-1 PEG reading of 0.2 through to the close of next year underlines HSS’s splendid value for money.

Build bumper returns

I’m convinced Britain’s chronic housing shortage should keep propelling earnings higher at MJ Gleeson (LSE: GLE).

MJ Gleeson saw revenues surge 52.1% during July-December, to £64.8m, helped by solid demand for affordable housing. And the firm plans to expand its geographical reach to help drive the top line still higher.

The City expects MJ Gleeson to enjoy earnings rises of 19% and 11% in the periods to June 2016 and 2017, respectively, resulting in very-decent P/E readings of 13.3 times and 12 times.

And like HSS, PEG readings of 0.7 times for this year and 1.1 times for 2017 at MJ Gleeson indicate unmissable bang for your buck.

Hostel hero

Online hostel-booking specialist Hostelworld Group (LSE: HSW) is in the box seat to enjoy strong revenues expansion, in my opinion, as demand for cheap beds across the globe takes off. Indeed, the company saw bookings leap 21% between July and December last year, and rising success in emerging regions promises to send sales still higher.

Earnings at Hostelworld are set to rise 7% in 2016, according to recent broker forecasts, and an additional 10% advance is chalked-in for 2017.

These figures leave Hostelworld dealing on P/E ratings of just 15.7 times and 13.7 times for these years. I reckon this represents stellar value given the firm’s strong position in a fast-growing sector.

The post 4 ‘secret’ growth stocks you daren’t pass up on! appeared first on The Twelfth Magpie.

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Royston Wild 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.