Supergroup(LSE: SGP) is surging today, rising over 10% at time of writing after the company released an impressive first quarter interim management statement and an upbeat outlook for the rest of the year.
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anagement revealed that during the companys financial first quarter, total sales jumped 15.9%, to 87m. Retail sales rose 13.6%, while wholesale orders for the period increased by 21.6% to 26.6m.
However, management did state that, as anticipated, like-for-like sales fell 3.7%. Nevertheless, Supergroups order book for theautumn/winter season has now closed, with initial indications showing that orders have increased 10% compared with the same period last year.
Julian Dunkerton, Chief Executive Officer, commented:
We have delivered another quarter of double-digit sales growth across both Wholesale and RetailWith our strong pipeline of new stores, particularly in mainland Europe, the continued evolution of the ranges and our improved infrastructure we remain confident that we have the platform to deliver profitable growth in the current year.
Should you buy in?
So should you buy in following this upbeat trading statement? Well, based on current trading, management has stated that the group is on target to meet the Citys estimates for full-year pre-tax profit, which arein the range 67.1m to 72.3m with a consensus of 70.3m.
This profitability target is almost 56% higher than the pre-tax profit reported by Supergroup for the 2014 financial year, which was 45m. Theres no denying that its an impressive rate of growth.
Unfortunately, with Supergroups profits surging, investors are willing to pay a premium for the companys shares. The company currently trades at a high forward P/E of 16.2, whichmay put some investors off.
Whats more, due to an increase in the basic weighted average number of shares thanks to a February share issue as a result of the acquisition of a European distribution partner Supergroups earnings per share are only expected to grow by 13% this year, despite a 56% rise in pre-tax profit. This means that the company is trading at a PEG ratio of 1.2x.
Impressive cash pile
Still, Supergroup has a healthy cash balance behind it and this could be reason enough to own the companys shares. During the last financial year Supergroup reported a68% in the net cash generated from operations, up to 64.3m for the full-year. At the year-end the group had a net cash balance of 86.2m, or around 106p per share.
But if you believe that Supergroup is too expensive, even after factoring in this cash balance, there are other opportunities out there. The key when searching for growth stocks is looking under the radar. You want to get on board while the company is still an unknown quantity, that way you wont need to pay a premium in order to benefit from the companys growth.
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Rupert Hargreaves 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.
