Today, I’m looking at two stocks which have delivered healthy gains for investors over the last five years. The first is small-cap giftware and stationery manufacturer IG Design Group (LSE: IGR).

I’ve long been a fan of this £330m AIM-listed company, which sells products such as wrapping paper and party decorations. IG Design’s share price has risen by almost 950% over the last five years, helped by a 350% increase in profit over the same period.

The company’s growth has been driven by a mix of organic expansion and acquisitions. Today, IG announced one of its largest acquisitions to date, a £56.5m deal to acquire Impact Innovations, a leading supplier of gift packaging and seasonal decorations in the USA.

To help fund this transaction, IG plans to raise up to £50m in a placing of new shares at 510p. Despite the new shares selling at a modest discount to today’s opening price of 534p, the share price was up by about 4% at the time of writing. This strong performance suggests to me that investors support this deal and are confident of further growth.

Is the stock a gift at this price?

Paul Fineman, Design Group’s chief executive, expects to achieve $5m in annual cost savings over the next three years. Fineman says that the acquisition of Impact Innovations should add to earnings per share in each of the next three years, and expand the group’s customer base of major US retailers.

Today’s gains leave IG Design shares looking fully priced, on 21.8 times forecast earnings for 2018/19. However, this firm’s track record of growth suggests to me that the business could grow into this valuation fairly quickly. For long-term investors, I’d continue to rate these shares as a buy.

A market-beating retailer

One place where you might find IG Design Group products for sale is your local branch of B&M European Value Retail (LSE: BME).

B&M’s blue and orange storefronts have become a regular site in town centres and retail parks, as this discount retailer has expanded rapidly across the UK. Shares in the firm — which sells popular ranges of groceries and household goods — have risen by 44% since its flotation in 2014.

Annual profit has risen from £38.6m to £185.6m over the same period. One reason for this is that the group enjoys an operating margin of about 8% — more than double any of the listed supermarket chains.

There could be more to come

B&M plans to open another 50 stores in the UK this year, taking its total to around 600. Like-for-like sales rose by 4.7% last year, and the group’s pre-tax profit rose 25% to £229m.

This level of sales growth is well ahead of the big supermarkets. It suggests to me that the group’s value-focused business model fits well with modern shopping habits and could be taking market share from traditional retailers.

Trading on 19 times forecast earnings for the current year, this stock isn’t obviously cheap. But earnings per share are expected to rise by about 18% this year, and by a similar amount next year.

If this growth can be maintained, I think the current share price could still leave room for further gains. In my view, B&M could be a future FTSE 100 stock.

The post This small-cap has already turned £1,000 into £10,460. Should you keep buying? appeared first on The Twelfth Magpie.

More reading

• This penny stock is down 85% in 5 years, but UK investors are buying it!
• Not sure what a SIPP is? 3 reasons it could pay to know!
• Up 15%, B&M shares are leading the FTSE 250 higher! Is the comeback on?
• Is this soaring penny share set for an explosive 2026?

Roland Head 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.

Will this state of play continue? And given that a great company doesn’t always translate to a great investment, might it be better to buy the cheaper of the two at the current time?

“Very bright future”

Based on today’s full-year results from IG Design, you’d suspect the Bedfordshire-based firm will continue to reward its owners.

With the company performing well in all regions in which it operates (but particularly in the US, Europe and Australia), revenue rose 5% to £327.5m over the year to the end of March. Positively, 73% of sales came from outside of the UK — underlining IG’s geographically diversified operations. Indeed, its products can now be found in more than 200,000 in over 80 countries.

When you consider that underlying pre-tax profit soared 32% to £21.4m, the decision to raise the final dividend by a whopping 45% isn’t all that surprising.  Although not an income stock by any stretch of the imagination (the forecast yield for next year is just 1.5%), the fact that the payout is covered 3.6 times by profits means there’s ample scope for this to continue to rise.  

CEO Paul Fineman sounded confident on the company’s outlook in 2018/19, reflecting that IG was “very well placed to continue to grow organically, across all regions and channels”. Add to this the possibility of acquisitions and the business has a “very bright future“, in his view.

Of course, management will always attempt to accentuate the positive whenever possible.  Nevertheless, recent developments do suggest that more positive news on trading could be on the cards.

The cash-generative nature of IG’s business has allowed the company to almost double its level of investment from £5.1m in 2017 to £9.4m in the last financial year, allowing a new state-of-the-art printing press to be installed in the Netherlands (providing the company with more capacity) and an IT upgrade in the US. The company’s acquisition of Australian card and paper products company Biscay Greetings for £5.5m cash back in April will also help it grow market share in this territory as the former is gradually integrated. 

After an initial burst at the opening bell, IG’s shares fell flat later this morning, suggesting that the market had already anticipated an encouraging set of numbers. With stock already trading at a relatively high 19 times forecast earnings for the 2018/19 financial year before this morning (and having climbed 33% in value over the last year alone), it’s understandable if a few market participants have chosen to take some money off the table.

Tough environment

In contrast to the above, recent numbers from Card Factory haven’t been anywhere near as impressive.

Last month’s trading update for Q1 to 30 April wasn’t particularly well-received by the market, despite management stating that performance had been “robust” and that expectations for the year remained unchanged. To recap, the company saw sales growth of 3% over the period but like-for-like sales fell slightly due to what the company reflected as a “tough retail environment“.

With the high street continuing to suffer (CEO Karen Hubbard made a point of highlighting “subdued footfall“), I’m still to be convinced by Card Factory’s strategy of continuing to grow its estate. Ten net new stores were opened in the UK over the period with a target of 50 maintained for the 2018/19 financial year. Personally, I’d prefer the company to focus on its online offering, particularly given the “strong sales growth” achieved at cardfactory.co.uk over the first quarter of trading.

There are some positives though. Trading on a little under 11 times earnings for the current financial year, it looks fairly cheap compared to industry peers. Returns on capital employed and operating margins are also higher than those at IG Design. What’s more, the monster forecast 7.4% yield is undeniably attractive, particularly for those who have the patience to stick with the company as it works its way through this undeniably sticky period.

If you believe Card Factory can thrive in time, the shares could offer considerable upside from here. For those willing to pay a higher price for the benefit of being largely protected from the UK’s troubled retail sector however, IG looks the safer bet.

The post Is this small-cap high flyer still a better buy than this cheap 7% dividend stock? appeared first on The Twelfth Magpie.

More reading

• This red-hot growth and dividend stock just entered the FTSE 100. Should investors consider buying it?
• 3 UK stocks to consider snapping up if the stock market crashes this month
• Want to retire early? Here’s how a weak stock market could actually help

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of Card Factory. 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.

The two companies I’m looking at today have both delivered gains of more than 60% over the last year, during which the FTSE 100 has risen by just 7%. Are these the kind of great stocks at fair prices we’re looking for?

“A strong pipeline”

Manufacturing group IG Design (LSE: IGR) produces giftware, stationery and toys which are sold in more than 80 countries. For example, it sold more than 40m pens and pencils and 80m Christmas crackers last year.

Last year’s sales totalled £311m, and generated underlying earnings per share of 18.2p. Broker consensus forecasts suggest that sales this year will rise by 4.5% to £325m, while earnings are expected to rise by 11.5% to 20.3p.

Today’s first-quarter trading update suggests to me that the group’s management is confident of delivering on these forecasts. IG says that performance so far this year has been in line with expectations, while the group’s order book is said to be “at record levels”.

Upgrade likely?

IG Design is hoping to improve profit margins by tweaking product ranges and improving its manufacturing processes. Management is also on the lookout for acquisition opportunities. The group’s return on capital employed has risen from 9.1% to 15.1% since 2014, suggesting these plans are working.

In my view, the wording of today’s statement suggests that chief executive Paul Fineman and his team are very confident about the year ahead. If trading continues on this basis, I think there’s a good chance that broker forecasts will be upgraded over the next six months.

The shares trade on a forecast P/E of 18 at today’s price of 385p. But I think there’s a good chance this valuation could end up looking cheap as IG continues to grow. In my view, the shares remain worth buying.

Rising expectations

Distributing a range of more than 500,000 electronic and industrial products requires great organisation and large scale to be profitable. Electrocomponents (LSE: ECM) appears to tick both of these boxes.

Sales totalled £1,512m last year, and the firm says its RS Components business is the number one distributor for engineers across Europe and Asia Pacific. The group also has a US business that’s growing strongly.

Last year’s results put Electrocomponents on a pricey trailing P/E of 30, with a dividend yield of just 1.9%. But group sales rose by 13% during the three months to 30 June, and broker forecasts suggests that earnings per share could rise by 18% this year and by 12% next year.

That gives the stock a forecast P/E of 25 for 2017/18, falling to a P/E of 22.5 in 2018/19. While that’s not cheap, I believe this company has many of the same qualities that make IG Design attractive — improving profitability, large scale and strong cash generation.

It’s worth noting that earnings forecasts for the current year have risen by 46% since last August. The group’s strong growth in the US and Asia suggests to me that this momentum could continue. I believe the shares could prove to be a profitable buy at current levels.

The post These 2 terrific growth stocks could make you a millionaire appeared first on The Twelfth Magpie.

More reading

• This penny stock is down 85% in 5 years, but UK investors are buying it!
• Is this soaring penny share set for an explosive 2026?

Roland Head 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

Strong performance

Reporting on Tuesday was international software company, Oxford Metrics (LSE: OMG). It announced a rise in revenue of 17% for the first half of the current year, which represents record performance. Its adjusted profit before tax was £1.6m, which was in line with expectations after focused investments. With cash flow generation being strong and the company receiving the remainder of the 2d3 consideration, its cash balance increased to £11.1m from £5.8m a year earlier.

Oxford Metrics seems to be making encouraging progress with its five-year plan. It is on target with its goal of doubling profits and tripling recurring revenues by 2021, with the annual value of recurring revenues moving 13% higher in the first half of the year. With the launch of Yotta’s new software platform, Alloy, and the opportunity to strengthen and protect Vicon, the company appears to have a clear growth strategy for the medium term.

Looking ahead to next year, Oxford Metrics is forecast to record a rise in earnings of 57%. This puts its shares on a price-to-earnings growth (PEG) ratio of only 0.3. While still a relatively small company which is therefore relatively risky, its potential rewards could prove to be significant.

Improving prospects

Also offering upbeat growth potential is IG Design (LSE: IGR). The gift packaging and greetings card specialist is forecast to report a rise in its bottom line of 41% this year, followed by additional growth of 11% next year. This follows four consecutive years of profit growth, which suggests the company has a relatively resilient business model. Given the uncertain outlook for the UK economy, this could prove to be a positive for the company’s investors.

While it has a relatively bright outlook, IG Design continues to trade on a fairly enticing valuation. For example, it has a PEG ratio of 1.7. Given its consistent track record of profit growth, this seems to be a relatively appealing price to pay. It suggests that further share price growth could be ahead after the company’s 42% rise since the start of the year.

As well as growth prospects, IG Design could also become a strong income play. It may have a dividend yield of only 1.2% at the present time, but its shareholder payouts account for only 23% of profit. This indicates that rapid dividend growth could lie ahead – especially when the company’s forecast profit growth rate is factored in. Therefore, from an income, value and growth perspective, IG Design could be a shrewd buy.

The post Two super growth stocks I’d buy today appeared first on The Twelfth Magpie.

More reading

• This penny stock is down 85% in 5 years, but UK investors are buying it!
• Is this soaring penny share set for an explosive 2026?

Peter Stephens 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.