As some choose to sleep off their Christmas Day indulgences this morning, others will be hitting the high street or jumping online with the aim of bagging a few bargains in the sales. I think that’s a shame, particularly as buying shares in great businesses rather than spending any surplus cash on stuff people didn’t want in the first place should lead to a lot more happiness over the long term.
As such, I think investors could do a lot worse than investigate two market newbies with encouraging plans for growth in 2017: posh chocs retailer, Hotel Chocolat (LSE: HOTC) and lifestyle brand, Joules (LSE: JOUL).
New-stocks-on-the-block
Since coming to the market in May, shares in Royston-based Hotel Chocolat have shot up a tasty 43%. Such a great return in only seven months is even more impressive considering the seismic political events that have occurred since.
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When you consider its last set of results in October however, such a rise isn’t all that surprising. With revenue climbing 12% to £91.1m (including a 20% jump in online sales) and profit after tax soaring 229% to £6.7m, the company seems to be doing all the right things. Given the popularity of affordable but luxurious products at this time of the year, I’d be amazed if this momentum hasn’t been sustained in the run up to Christmas.
Another top growth opportunity could be Joules. Like Hotel Chocolat, the share price of the £189m cap wobbled in both July and November. Since results on 7 December revealed a 16.2% rise in group revenue (to £81.4m) for the last six-month period however, its shares have done well. Again, I see no reason to question why trading over the festive period will have reversed, especially as consumers — for now — appear undaunted by the potential consequences of Brexit.
Reassuringly expensive?
As things stand, shares in Hotel Chocolat and Joules trade on high forecast price-to-earnings (P/E) ratios of 38 and 25 respectively. Clearly, there are a lot of other retailers on lower valuations out there. Nevertheless, fixating on P/E ratios isn’t ideal, particularly when scrutinising companies that have clear strategies for growth.
According to CEO Angus Thirwell, Hotel Chocolat’s three strategic priorities for 2017 are to continue investing in its manufacturing operations, grow its store estate and develop its online business. These plans, along with the company’s appealing ‘more cocoa, less sugar’ approach, potential for overseas expansion and vertically-integrated supply chain, make me rather bullish on the £300m cap’s prospects.
Meanwhile, cash-generative Joules has plans to target markets such as the US and Germany. This could be hugely beneficial, given that international sales currently account for a only small proportion of total revenue. Elsewhere, the company has already remarked on strong growth in its wholesale order book for spring/summer next year, suggesting that it will begin 2017 in fine health.
There will always be winners and losers as far as the Christmas trading period is concerned, of course. Indeed, things are only likely to get worse for some retailers in 2017, as rising inflation leads consumers to become even more selective about where they choose to spend their money. For Hotel Chocolat and Joules however, next year could see their share prices rise even higher so long as both companies follow through with their plans. I think their relatively steep valuations are justified.
