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 company’s 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, Supergroup’s order book for the autumn/winter season has now closed, with initial indications showing that orders have increased 10% compared with the same period last year.
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Julian Dunkerton, Chief Executive Officer, commented:
“We have delivered another quarter of double-digit sales growth across both Wholesale and Retail…With 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 City’s estimates for full-year pre-tax profit, which are in 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. There’s no denying that it’s an impressive rate of growth.
Unfortunately, with Supergroup’s profits surging, investors are willing to pay a premium for the company’s shares. The company currently trades at a high forward P/E of 16.2, which may put some investors off.
What’s 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 — Supergroup’s 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 company’s shares. During the last financial year Supergroup reported a 68% 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 won’t need to pay a premium in order to benefit from the company’s growth.
