Heres a statistic for you. Online salesare up 16.7% year-on-year according to the Office for National Statistics. Thats a serious shift in spendingbehaviour. As such, it may be worth investors asking whether their portfolios should have some exposure to companies that generate a vast proportion (if not all) of their earnings online. Lets look at three examples.
Why so serious?
One beneficiary of this trendhas been pure-playclothing retailer Boohoo.Com (LSE: BOO). Its shares have doubled in valuefrom the start of the year. This significant rise means the company now has a market cap of just under 1bn quite a turnaround for a stock that was jettisoned from many investors portfolios back in January 2015 following a shock profit warning.
While share prices never movein a straight line, Id be surprised if Boohoosfailed to risefurther, especially as a recent trading update made reference to thethe board anticipating interim results (due at the end of September) to be above expectations following robust demand and sales momentum in the first quarter.
Whiletrading on what appears to be a sky-highforecastprice-to-earnings (P/E) ratio of 55, this is still less than than the P/E of itsbiggest online competitor,ASOS (LSE: ASC) at 63. At roughly a quarter of the latters size, Id argue that Boohoo offers more upside potential.
Gearing up for growth?
With a market cap of just 33m, York-basedGear4music (LSE: G4M) might seemsmallbut its already the largest UK-based online retailer of musical instruments and equipment. A favourable trading statement released at the end of July would suggest a bright future ahead. UK sales were up 44% to just over 9m compared to the same four-month period in 2015. Sales growth in Europe was even stronger, jumping 137%. Taken together, Gear4music managed to increase total like-for-like sales by 66%.
The company plans to open its first European Distribution centre before the end of 2016, allowing it to reduce both delivery timescales and costs and thereby offer the same level of service that its UK customers enjoy. Julys update also made reference to the company beingwell positioned to take advantage of the short-term export opportunities created by the UKs EU Referendum vote.
Gear4musicoperates in a fragmented market, ripe for consolidation (even if management saysthat this isnt the immediate priority). Factor-in its impressive, user-friendly website, bespoke e-commerce platform, large product range and excellent customer feedback and the investment case for Gear4music lookspretty compelling.
Stay for the dividends?
Hostel-focused online booking platform, Hostelworld (LSE: HSW) is another option with thecompany announcing its interim results earlier this morning.Booking growth was up 16%with45% of this coming from mobile devices.The company also reporteddecentgrowth in emerging markets with bookings to Asian destinations up 30%.
Initial indications suggest that the market is extremely pleasedwith these figures and the boards statement that expectations for the full year remain unchanged (despite challenging market conditionsfollowingBrexit and recentterrorist attacks). Hostelworlds share price is up almost 9% this morning.
In addition to its market leading status and the possibility of future growth, Hostelworlds massively cash-generative business model means its able to pay largedividends toshareholders. A yield of around 7%, covered 1.3times by earnings is certainly appealing in this low-rate world.
The future is online
The UK’slove ofonline shopping and booking
shows no sign of slowing down. As investors, it may therefore pay to devote at least a proportion of our capital tothose companies that saw this trend coming and are now starting to reap the benefits, especially those thatdon’t also sufferthe hassles associated with having a high street presence.
However, those with a high street presence can also be winners.If finding companies with excellent growth prospects, whether online or offline, flicks your investing switch, you may wish to read a special FREE report written by the experts at the Motley Fool. They’ve found a top British brandthat has the potential togo global overtime andreward loyal shareholders while doing so.
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Paul Summers owns shares in boohoo.com and Gear4music. The Motley Fool UK has recommended boohoo.com. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
