Rather than blowing money on presents people don’t want or need, I said that these two growth stocks could be the best use for your Christmas money. I’m putting my reputation on the line here, by checking up on my own predictions. So should you be thankful for my Christmas gift?

IG Design Group

Greetings card and gift wrapping company IG Design Group (LSE: IGR) caught my eye after growing an incredible 850% over five years, while defying the retail slowdown afflicting the UK high street.

It helped that this is a global company, whose products now retail in more than 200,000 stores across 80 countries. Around 60% of its revenues come from the US and just over 20% from the UK, with the remainder split between Europe and Australia.

Since I tipped the AIM-listed stock in December last year, its share price has climbed another 23%, I was happy to discover.

Its latest results show a company that is still growing nicely, with reported revenue up 21% to £248.4m in the six months to 30 September, driven by organic growth and the £56.5m acquisition of Minnesota-based Impact Innovations. Better still, net debt fell 14% to around £86m, while the interim dividend per share increased 20% to 3p.

The IG Design Group share price’s rapid growth means the stock is relatively expensive, trading at 20.8 times forward earnings. However, it isn’t that expensive, given that City analysts are forecasting earnings growth of 98% in the year to 31 March 2020, followed by 8% the year after.

The company has also built strong, long-term relationships with retailers, which should help if we have bumpy times ahead. I would be happy to keep this in my portfolio in 2020 and beyond.

International Consolidated Airlines Group

My other Christmas stock tip was International Consolidated Airlines Group (LSE: IAG), owner of British Airways, Iberia, Aer Lingus and budget airlines Level and Vueling. I recommended it despite a bumpy 2018, when the share price was hit by Brexit, crew and air traffic control disputes, and a UK competition authority investigation into its revenue-sharing agreement with Finnair and American Airlines.

I was drawn by its incredibly low valuation of just 5.9 times forward earnings and 3.9% forecast yield, covered 4.3 times by earnings.

One year later, the €12.88bn FTSE 100 stock is down 7%, so no glory for me here. Continued strike threats knocked investor sentiment, while the group was also hit with a £183m fine following the hacking of its website.

However, it has recovered smartly from a summer slump, and is up 27% in the last three months, helped by the collapse of rival Thomas Cook. 

The IAG share price is still incredibly cheap, trading at five times forward earnings, while yielding 4.5%, with healthy cover of 3.75 times earnings.

The airline industry is tough, especially for established players, due to relentless price pressure, while factors such as terror attacks and fuel costs are beyond management control. This remains a hugely profitable company and it is certainly on the right track at the moment. I would still buy it.

The post £2k to invest? I’m tipping these stocks to outperform in 2020 appeared first on The Twelfth Magpie.

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Harvey Jones 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.

Festive getaway

People aren’t just driving home for Christmas they are also flying and FTSE 100-listed International Consolidated Airlines Group (LSE: IAG) should reap the benefit. IAG owns British Airways, Iberia, Aer Lingus and budget airlines Level and Vueling, and will benefit from people jetting home to be with family at Christmas (or flying away from them).

The £12.2bn company has had a bumpy year, with the share price around 3% lower than 12 months ago as it has been caught up in Brexit turbulence, as well as crew and air traffic control disputes. The UK competition authority has launched an investigation into the 10-year revenue-sharing joint venture agreement with Finnair and American Airlines, which hasn’t helped. 

High flyer

Chief executive Willie Walsh recently reported a positive third-quarter performance with a small increase in operating profits before exceptional items from €1.45bn to €1.46bn year-on-year, “despite significant fuel cost and foreign exchange headwinds”. With oil falling to around $60 a barrel, fuel costs are now turning into tailwinds.

IAG is currently valued at just 5.9 times forecast earnings and looks cheap enough to buy, with Walsh setting out plans to increase target underlying operating profits to €7.2bn a year for 2018-22, up from €6.5bn. Plus you get a decent forecast yield of 3.9%, and cover of 4.3. The biggest danger is that a UK and European slowdown could hit traffic.

All wrapped up

This is the most wonderful time of year for greetings card and gift wrapping company IG Design Group (LSE: IGR). This AIM-listed £450m company has a large global reach, with operations in the Americas, Europe and Australia. Its products now retail in more than 200,000 stores across 80 countries and it is expanding through acquisition.

It has also been one of the most exciting stocks of the last five years, up an incredible 850% over that time, yet hasn’t attracted the investor excitement you might expect given its soaraway growth. I wrote about this small-cap 12-bagger earlier this year, noting that it has even managed to defy the retail slowdown affecting bricks and mortar retailers on the stricken UK high street. 

Christmas on the cards

The group recently announced a reported 23% rise in revenue to £205m, driven by organic growth of 4% and the acquisition of Impact Innovations Inc in the US, while underlying profit before tax jumped an impressive 76% to £18.5m.

Unsurprisingly it isn’t cheap, currently trading at 21.6 times forward earnings, but it isn’t that expensive given such strong growth, with earnings forecast to rise 13% and 17% over the next two years. You even get a small yield, currently a forecast 1.5%, with cover of 1.3x, but this stock is all about the growth. I’m hoping IAG and IG will both shine at Christmas, and for years to come.

The post These 2 growth stocks could be the best use for your Christmas spending money appeared first on The Twelfth Magpie.

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harveyj 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.

Design for life

Over the same period, Sirius Minerals is up a meagre 28%. Yet which generates all the clicks and column inches? Our polyhalite pals Sirius. In the meantime, IG Design Group has got on with making early investors brilliantly rich. Good on ’em.

Good on my colleague Roland Head too, the first Fool writer to highlight this opportunity back in 2015, when it traded under the name International Greetings. He said this “boring-sounding firm makes boring products like wrapping paper, gift tags and stationery but it hasn’t been dull for shareholders”, adding that I wouldn’t bet against further gains over the next year or two. How right he was.

Meet and greet

IG Design Group still does the same old boring stuff, and a jolly good thing too. Earlier this month, it posted record annual profits and revenues with strong performance across the US, Europe and Australia. Even the stricken UK returned to growth, with management bucking the national mood by seeing growth opportunities in bricks and mortar retailers, as well as online.

Pre-tax profit increased 51% to £19.7m, while the total dividend jumped 33% to 6p per share. It currently yields 1.5% and with cover of 3.5, management has scope for further double-digit progression. IG Design may look a little expensive at 19.4 times earnings but rapid growth justifies that valuation. City earnings forecasts remain positive, predicting 21% growth in the year to 31 March 2019, then another 9% to 2020. Past performance is no guarantee, but if you have not met this £311m stock AIM-listed stock before – greetings!

Mineral wealth

Sirius Minerals meanwhile needs no introduction but it does need explanation. The share price continues to progress in fits and starts, its performance chart marked by sudden spikes upwards, followed by equally dramatic sudden spikes in the opposite direction.

My best advice is do not invest at the top as you will get buried by the rush of profit-takers. Aim to buy when it is in the doldrums, and news flow is thin. Today it trades at 33p although some claim its share price could hit 60p this year. It might be an opportunity.

The long-term story remains strong for the £1.56bn FTSE 250 stock, and that is what you must focus on. It continues to sign new contracts for its planned fertiliser production, securing binding agreements for 4.7m tonnes a year, lifting it tantalisingly close to the 6m or 7m its needs to secure second stage financing.

Do not underestimate the risks. Chairman Russell Scrimshaw is looking for taxpayers to guarantee £1.44bn of debt, something he says is “essential” for the mine to succeed.

The City is forecasting a £23.55m loss this year, down from £79.25m in 2017, with no profits expected until at least 2022. Any delay, or government reluctance to help, could knock the stock. Remember, buy when it’s down, not up.

The post This small-cap 12-bagger is completely trashing Sirius Minerals appeared first on The Twelfth Magpie.

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Harvey Jones owns shares in Sirius Minerals. 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.

Since April 2013, shares in the company have produced a total return of more than 800% excluding dividends. Including dividends, over the past five years, the stock has returned 60.4% per annum for investors. 

Over the past 10 years, IG has added 26% per annum, enough to turn an initial investment of £1,000 into £11,500 or £100,000 into £1.2m. I believe that this performance is set to continue as the company builds on its past successes. 

Indeed, City analysts have forecast earnings per share growth of 38% for 2018, followed by an increase of 9% for 2019. According to a trading update published by the company today, it looks as if IG is well on track to hit these targets. 

Management notes current figures indicate trading for the fiscal year to 31 March will be in line with expectations thanks to a robust performance from all regions. What is even more impressive is the fact that the company expects to achieve this growth despite “record levels of capital expenditure invested” during the year. Capital spending, coupled with the acquisition of Biscay Greetings in Australia, should help the group continue to expand its global sales volumes across the world. 

The update also states “net cash ended the year positive” after property sales, organic cash generation and capital spending. Even though the company expects to end the year with a clean balance sheet, average leverage during the year is projected to have been below 1.5 times earnings before interest tax depreciation and amortisation (down from 2.3 times last year). 

So overall, IG’s business continues to grow rapidly, and management is complementing organic growth with acquisitions, funded by cash generated from operations. To me, this indicates that the company still has plenty of potential. With this being the case, the stock’s valuation of 21.5 times forward earnings does not look to be too demanding. 

Just getting started 

Another growth stock I like the look of is the Gym Group (LSE: GYM). This company is a trailblazer in the low-cost, pay-as-you-gym exercise market, which has been expanding rapidly over the past decade as consumers shift away from the tired contract-based gym business model. 

Gyms require a lot of capital to start up, but then go on to generate steady returns for many years without needing any more significant spending. As a result, the Gym Group started life with losses and high costs but as its portfolio has grown, economies of scale have begun to work in its favour. 

For example, as revenue has tripled over the past five years, the firm’s operating profit margin has increased to 11% from -0.5%. 

Analysts expect this trend to continue. Earnings growth of 41% is slated for 2018, and an increase of 29% has been pencilled in for 2019. The 2019 target implies the shares are trading at a forward P/E of 20, which might seem expensive. But when you consider the fact that the group only has 128 gyms (year-end 2017) and just over 600,000 members, compared to the total UK fitness industry membership of 10m across 6,800 gyms, it quickly becomes apparent just how small the company still is and how much room it has left to grow. 

Considering the above, in my opinion, the stock deserves a high earnings multiple.

The post These monster growth stocks could help you make a million appeared first on The Twelfth Magpie.

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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.

However, there’s one company that has managed to shrug off these concerns and attract a high valuation thanks to its impressive growth.

Customer focus 

Smart Metering Systems (LSE: SMS) connects, owns and operates metering systems for gas/electricity suppliers. Over the past six years, as the demand for smart meters has grown, revenue has exploded by more than 300% and reported net profit has increased by 590%. 

It looks as if these impressive rates of growth carried on throughout 2017. According to the company’s year-end trading update, published this morning, total annualised recurring revenue for the period to 31 December grew 38%, and the overall number of assets under management by the firm increased by approximately 62% to 2.03m. For the gas division, meter recurring revenue grew by 15%, while recurring data revenue increased by a similar amount. Electricity meter recurring revenue nearly tripled during the period, and data revenue for this division rose 56% for the year to 31 December. 

Following this robust performance, management is expecting the company to report full-year earnings in line with current City expectations. Analysts have pencilled in Earnings per share growth of 10% for 2017 to 19.2p followed by an increase of 17.6% for 2018 to 22.6p. 

Unfortunately, the one downside of SMS’s explosive growth is that the shares have attracted a relatively high valuation of 38.2 times forward earnings. Still, while this is high, I believe that it is a suitable multiple for a business that is growing recurring revenue at a rate of more than 30% per annum and assets under management at a rate of more than 60%. As SMS continues to grow, I believe that it won’t be long before this valuation is out of date.

Dividend champion

Another grand champion I’m positive on the outlook for is IG Design (LSE: IGR). Over the past three years, shares in IG have surged by more than 400% as the company has grown net profit at a staggering 122% per annum on average. City analysts don’t expect this trend to end any time soon with growth of more than 50% pencilled in for fiscal 2018 followed by net profit growth of 14% for 2019. Earnings per share are expected to expand by a total of 55% during this period. 

Formerly known as International Greetings, IG is a designer, manufacturer and distributor of items such as gift packaging and greetings cards. This is a relatively low-margin business, but the firm’s increasing scale is allowing it to achieve returns not available to smaller peers. For example, over the past five years, return on capital employed — a measure of how much profit a company is generating for every £1 invested — has increased from 7.6% to 15.5%. Improving economics have driven free cashflow growth, and thanks to its improving financial position, IG has been able to grow its dividend from 1p per share and 2015 to an estimated 5.5p for fiscal 2018. 

Despite this impressive profit and dividend growth, shares in IG look relatively cheap compared to those of SMS. The stock trades at a forward P/E of 17.9 and yields 1.5%.

The post 2 high-growth stocks that could make investors rich appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Smart Metering Systems. 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.

Following the release of half-year numbers it was down 10% from Monday’s close but, as you will see, there was little in the statement to prompt such a sudden drop.

Instead, today’s mild sell-off can be attributed to profit booking on the back of recent share price strength. IG Design’s market value swelled by almost a quarter in the month leading up to today’s results, with the firm hitting a record of 435p per share just yesterday.

Today’s release suggests to me that the Bedfordshire-based firm should resume its upward charge sooner rather than later.

Global superstar

In a sign of further progress, chief executive commented today that it had enjoyed yet another “robust performance” in the six months to September, a period in which it saw “all regions trading profitably and growth being achieved both organically and through acquisition.”

Revenues at IG Design — which designs and manufacturers gift packaging, greetings, stationery and a variety of other giftware — leapt 14% in the six months to £166.5m, with organic sales at constant currencies increasing 10% year-on-year. As a result, pre-tax profit at the firm ballooned 27% in the first half to £10.5m.

Buoyed by this impressive performance, IG Design decided to light a fire under the interim dividend, hiking the payment by 14% to 2p per share.

It’s little surprise to see IG Design striking such an upbeat tone as its broad catalogue of products fly off the shelves across all major territories. In the Americas and the UK, IG Design saw revenues climb by 18% and 4%, respectively, in the period to September, to $91.3 and £57.5m. And sales are likely to continue booming Stateside thanks to the shrewd acquisition of US-based rival Lang last year.

As if this wasn’t enough, IG Design also continues to make impressive progress in its other international markets; in Continental Europe and Australia sales advanced 19% and 13%, respectively, in the first half.

City analysts are expecting earnings at the business to rise 10% in the year to June 2018 — and follow this with a 14% advance in fiscal 2019. And I reckon that these impressive projections could be subject to meaty upgrades in the weeks and months ahead.

With IG Design’s improving balance sheet also raising, the possibility of additional earnings-boosting M&A (net debt fell £6.2m during the first half to £70.2m), I reckon the business is a brilliant growth share worthy of a premium forward P/E ratio of 19.5 times.

Looking good

The Gym Group (LSE: GYM) is another London-quoted share predicted to deliver exceptional profits growth in the near-term and beyond.

Bottom-line rises of 33% and 21% are anticipated in 2017 and 2018, correspondingly, estimates that are clear to understand as member numbers at the business steadily explode. It saw its membership base improve 19.8% during January-June, to 508,000, and with The Gym Group steadily expanding (it snapped up 18 gyms from Lifestyle Fitness in September), I expect the number of gym-goers on its books to keep steadily expanding.

I am convinced The Gym Group is a brilliant share to consider today despite its elevated  forward P/E rating of 28 times.

The post Two secret growth stocks that could still make you brilliantly rich appeared first on The Twelfth Magpie.

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Royston Wild 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.

It distributes and develops digital products in the online security space, a hot and fast-growing market. Management is driving growth through both organic expansion and acquisitions funded by the company’s strong cash generation. 

For the first half of 2017, its core App Distribution division performed strongly with preliminary figures showing revenues of $20.6m, up 13.1% year-on-year. According to management, this growth reflects the “successful expansion of Crossrider’s B2C cyber security software business.” To complement this organic growth, earlier this year the group announced that acquisition of CyberGhost, a leading SaaS Virtual Private Network provider. 

Cash rich 

Crossrider has a solid balance sheet to pursue further acquisitions. At the end of June, cash was $67.9m, or around £52m, 47% of the firm’s current market value. 

City analysts are expecting it to report its maiden profit this year. A pre-tax income of £5.9m is pencilled in giving projected earnings per share of 2.9p. Based on these forecasts, shares in the company are trading at a forward P/E of 23.6. 

This growth multiple might seem expensive, but analysts have pencilled in further earnings growth of 71% for 2018, giving a PEG ratio of 0.2 implying that shares in Crossrider are appropriately valued compared to the company’s future growth. 

Even though it has a mixed past, management’s efforts to refocus the business seem to be paying off. Profits are growing, the company has a strong cash balance to fund its expansion (as well as bolt-on acquisition), and there’s plenty of room in the digital market for the firm to expand. All in all, this is one small-cap that’s worth adding to your watchlist.

Small-cap with big potential 

IG Design (LSE: IGR), formerly International Greetings plc is another small-cap with big potential. It flies under the radar of most investors because it’s a relatively boring business that sells gift packaging and greetings cards, amongst other items, in over 150,000 stores around the world. This business, while boring compared to high growth tech firms, is lucrative. Pre-tax profits have jumped 220% since 2014.  For the year ending 31 March 2017, earnings per share rose 25%. 

Going forward, City analysts expect IG’s rapid growth to continue. Analysts have pencilled in earnings per share growth of 11% for the financial year ending 31 March 2018, followed by growth of 11% for 2019. According to the first quarter trading update, the group is firmly on track to hit these targets having made a strong start to the year. 

Unfortunately, thanks to the company’s historical growth rate, shares in IG are not cheap. The shares currently trade at a forward earnings multiple of 18.9. Still, considering the group’s past performance, I believe that this is a price worth paying. 

The company is highly cash generative and was able to reduce net debt from £17.5m last year, to a net cash position of £3m at the end of fiscal 2017. Based on these figures, I wouldn’t be surprised if management decides to start returning more cash to investors via special dividends going forward. The shares currently yield 1.4%. 

Overall, based on IG’s steady growth, cash rich balance sheet and dividend potential, I believe that the company has brilliant potential. 

The post 2 small-cap under-the-radar growth stocks with brilliant potential appeared first on The Twelfth Magpie.

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Rupert Hargreaves 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

IG Design Group (LSE: IGR), which used to be known as International Greetings, designs and manufactures gift packaging and stationery. And judging by the past few years of sparkling earnings growth, it’s a very profitable business.

We’ve seen earnings per share soar from 7.2p in 2012 to 13.2p in 2016, and the company has just revealed a 38% rise in underlying EPS for the year to March 2017 to 18.2p. That came from a 31% rise in revenue to £311m, which generated a 32% boost for pre-tax profit to £13m.

Dividend back

The dividend was only reinstated in 2015, and this year came in ahead of forecasts at 4.5p per share. On a share price of 337.5p it’s only a yield of 1.3%, but it’s strongly progressive and there seems to be plenty of cash to support forecasts for future rises. IG saw cash generated from operations grow by 52% to £31.5m and ended the year with no debt and cash of £3m.

Chief executive Paul Fineman called it “a year of tremendous progress, with many record outcomes” and seemed ebullient over the firm’s potential — even more than CEOs usually are.

I think IG shareholders have good reason to be optimistic about the future, with forecasts for next year suggesting a further EPS rise of 11% to put the shares on a P/E of around 17 — and I see that as an attractive valuation, even with the shares doubling in the past 12 months.

Off the boil

Shares in Porvair (LSE: PVR), the filtration and separation equipment specialist, had been on a cracking run up until 1 June, having more than doubled since February 2016. 

But it had all the hallmarks of an over-exuberant growth share that’s gone a bit too far, the kind that often fall rapidly as soon as one piece of news comes in that doesn’t beat expectations. Full-year forecasts put the shares on P/E multiples of around 30, with EPS growth set to slow to 5%-7% per year and dividends yielding less than 1%.

That event appears to have happened on Tuesday with the release of first-half results, though they actually look pretty good — showing how fickle the sentiment towards high-flying growth shares can be. The share price dropped 5.3% in morning trading to 540p, down 11% since that peak.

Pre-tax profit grew by 9% to £4.9m, with earnings per share up 11% to 8.3p and the interim dividend lifted by 7% to 1.5p — all of which bodes well for forecasts. 

Ointment, meet fly

One negative snippet is that profits were “held back by start-up losses in China,” and that might have frightened the nervous.

Chief executive Ben Stocks reckons the company “has a strong balance sheet, a promising project pipeline and sees many opportunities for further growth ahead,” and it does seen to be performing admirably to me — its J G Finneran Associates acquisition was said to have performed well and has boosted the company’s presence in the laboratory sector.

But that valuation is just too rich for me, and I’d need to see a fair bit more shaved off the share price before I’d start to see it as attractive — I’d take profits.

The post One growth stock I’d snap up and one I’d dump appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK owns shares of Porvair. 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.

Improving performance

The third quarter saw a continuation of IG Design’s upbeat performance from the first half of the year. While today’s update doesn’t provide any figures on sales growth, it does state that results are in line with the upgraded expectations released in November. Furthermore, all of the company’s regions are trading profitably, which shows that its current strategy is working well.

In fact, the company is forecast to grow its bottom line by 28% in the current year. If this is achieved, it would mean that it has posted five successive years of profit growth, with earnings rising at an annualised rate of over 17% during the period. This shows that IG Design has the potential to perform well in a variety of market conditions, which should bode well given the uncertain outlook for the UK economy and retail sector.

A difficult year ahead?

A key reason why the UK economy and retail sector face a challenging future is Brexit. Already, it has caused a depreciation in the value of sterling which is likely to equate to a much higher rate of inflation over the course of 2017. This could mean a return to the negative real wage growth last seen in the aftermath of the credit crunch, with consumer spending likely to decline as shoppers tighten their belts. That’s particularly the case since unemployment could rise over the medium term.

As mentioned, IG Design appears to be well placed to overcome such challenges. This is evidenced by its past performance, but also by its wide margin of safety. For example, it trades on a price-to-earnings growth (PEG) ratio of only 1.4. This shows that even if its profit guidance is downgraded, it could still be a strong performer versus its sector peers. And its earnings growth indicates that a share price rise of over 20% is relatively likely.

An even better option?

Of course, sector peer Walker Greenbank (LSE: WGB) offers an even lower valuation. The interior furnishings company is forecast to grow its earnings by 26% in the next financial year, which puts it on a PEG ratio of only 0.5. And with it having recorded a rise in earnings in each of the last five years, it offers a relatively stable business model as well as a sound strategy. As such, while IG Design is a strong long-term buy, Walker Greenbank could outperform it while offering a lower risk profile from its wider margin of safety.

The post Why IG Design Group plc is set to soar by 20%+ after today’s update appeared first on The Twelfth Magpie.

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Peter Stephens 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.

Patisserie’s roll-out appears to be delivering stunning returns. Has the stock’s decline given investors a second opportunity to get involved with this impressive growth story? In today’s article, I’ll take a closer look.

I’ll also ask whether fast-growing giftware group IG Design Group (LSE: IGR) is worth buying after today’s impressive results.

Tasty growth could continue

Patisserie Holdings’ main brand is the Patisserie Valerie chain of café and cake shops. Growth was strong last year, with sales up 13.3% to £104.1m, and earnings per share up by 20.1% to 13.6p. The final dividend has been increased by 20% to 2.0p per share.

Patisserie opened 21 new stores during the year, taking the total number of stores to 184. The company is continuing to target 20 new store openings each year, and says that a number of last year’s new stores are trading “ahead of expectations”.

What’s so impressive about this business is that the rollout of new stores is being completely funded from Patisserie’s operating cash flow. Despite also paying a dividend, Patisserie has no debt, and ended last year with net cash of £13.3m.

Although the group’s rollout will eventually reach a natural limit, we don’t seem to have reached that point yet. It’s also worth remembering that as the group gets larger, each new store will make a smaller contribution to profits, in percentage terms.

Today’s results give Patisserie Holdings a trailing P/E of 20.5, and a trailing yield of about 1%. Earnings are expected to rise by 15% to 15.6p in 2016/17, putting the stock on a forecast P/E of 17.9.

Overall, my view is that Patisserie Holdings is reasonably priced at current levels. Growth investors may want to take a closer look.

These shares could be a gift

Sales at giftware group IG Design rose by 21.5% to £145.5m during the first half of the year, according to today’s interim results. Adjusted pre-tax profit rose by 57.5% to £8.2m, while underlying earnings per share were 50% higher, at 9.6p.

The company’s shares have risen by 5% to 289p following today’s news. The second half of the year includes the key Christmas trading season, and management believes that full-year performance “is now expected to be above current market forecasts”.

The growth potential of IG Design looks significant, in my view, but there are downside risks too. Earnings growth during the first half came from organic growth (20%), acquisitions (10%) and currency movements (20%).

IG Design’s move into the US market appears to be going well. UK growth also seems strong. The obvious risk is that the pound will rise against the dollar. This could hit IG’s profits, and cancel out gains from organic sales growth.

After today’s results, I estimate that full-year earnings of about 17p–18p per share are possible. This would put IG on a forecast P/E of 16. In my view, that’s a fair price. Although I’m concerned about potential currency risks, I believe IG Design could deliver further gains for shareholders in 2017.

The post Could 20% profit growth help Patisserie Holdings plc & IG Design Group plc double in 2017? appeared first on The Twelfth Magpie.

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