Pre-tax profit rose by 18.2% to 17.2m at upmarket caf and cake shop operatorPatisserie Holdings (LSE: CAKE) last year. The groups shares have risen by 9% so far today, but are still worth 31% less than they were at the start of the year.
Patisseries roll-out appears to be delivering stunning returns. Has the stocks decline given investors a second opportunity to get involved with this impressive growth story? In todays article, Ill take a closer look.
Ill also ask whether fast-growing giftware group IG Design Group (LSE: IGR) is worth buying after todays impressive results.
Tasty growth could continue
Patisserie Holdings main brand is the Patisserie Valerie chain of caf 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 years new stores are trading ahead of expectations.
Whats so impressive about this business is that the rollout of new stores is being completely funded from Patisseries operating cash flow. Despite also paying a dividend, Patisserie has no debt, and ended last year with net cash of 13.3m.
Although the groups rollout will eventually reach a natural limit, we dont seem to have reached that point yet. Its also worth remembering that as the group gets larger, each new store will make a smaller contribution to profits, in percentage terms.
Todays 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 todays 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 companys shareshave risen by 5% to 289p following todays 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 Designs 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 IGs profits, and cancel out gains from organic sales growth.
After todays results, I estimate that full-year earnings of about 17p18p per share are possible. This would put IG on a forecast P/E of 16. In my view, thats a fair price. Although Im concerned about potential currency risks, I believe IG Design could deliver further gains for shareholders in 2017.
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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.
