It hasnt been a great year for investors in Premier Farnell (LSE PFL), with shares in the company falling by 15% since the turn of the year. This does not compare well with the FTSE 100s 0.5% gain over the same time period.
But, looking ahead, Premier Farnell could become one of your star performers. Furthermore, its share price could double. Heres how
Todays results from Premier Farnell were upbeat and showed that the company is making good progress. For example, sales growth of 4.7% was reported in the first half of the year, with the companys operating margin remaining constant and in-line with expectations.
Furthermore, the reorganisation of the business is well on-track and is expected to save the company between 6 million and 8 million per year, all of which have meant that adjusted profit increased by 2.4% despite currency headwinds.
In terms of future potential, Premier Farnell appears to be on the brink of a purple patch. Thats because, while earnings growth in the current year is set to be rather pedestrian at 4%, next year is expected to show a much stronger performance from the company. Indeed, earnings per share (EPS) is forecast to grow by 16% in the next financial year, which is roughly twice the expected growth rate of the wider market.
With Premier Farnell trading on a price to earnings (P/E) ratio of just 12.4, this equates to a very attractive price to earnings growth (PEG) ratio of just 0.7. This highlights that growth is on offer at a very reasonable price.
Despite having a very comfortable dividend payout ratio of 72%, Premier Farnell currently yields a whopping 5.8%. This appears to be rather high given the companys strong performance, very bright prospects and attractive valuation. As a result, it would be of little surprise to see Premier Farnells share price bid up by investors who are seeking a combination of income, growth and great value.
With the FTSE 100 currently yielding 3.3% and Premier Farnell set to deliver strong performance, its feasible that the latters yield could be pushed as low as that of the wider index. After all, Premier Farnell is due to increase earnings at twice the rate of the wider index next year.
Were this to happen, it could mean that shares in Premier Farnell trade at a price of 373p. Thats just over twice the current share price of 184p and would not requirea jump in dividends, but merely for the current dividend payout ratio to be maintained.
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Indeed, with huge growth potential, Premier Farnell could prove to be a star performer. However, it’s not the only one. The Motley Fool’s Top Growth Share Of 2014 still offers upside potential and could make a positive contribution to your portfolio.
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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.