Patisserie Holdings’ share price is smashing the returns from the FTSE 100

Patisserie Holdings plc (LON: CAKE) shares have jumped 155% since 2014, easily outperforming the FTSE 100 (INDEXFTSE: UKX). More gains to come?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

If you’re looking for big returns from the stock market, it can pay to look outside the FTSE 100. Sure, the index has jumped 12% in the last six weeks or so, but over the long term, its performance hasn’t been breathtaking. It’s returned just 7.1% per year, on an annualised basis, for the five years to the end of April.

In contrast, plenty of high-quality small-cap stocks have generated returns considerably higher than that. Here’s a look at one such stock that’s significantly outperformed the FTSE 100 in recent years.

Affordable luxury

£441m market-cap Patisserie Holdings (LSE: CAKE) is a leading cafe and casual dining group offering cakes, pastries and meals from over 180 stores in the UK. It currently operates across five differentiated brands including Patisserie Valerie, Philpotts and Baker & Spice, essentially catering to those seeking affordable luxury.

Listing on the AIM market just under four years ago at an IPO price of 170p, CAKE shares have since surged 155%, easily outperforming the return from the FTSE 100 of 13% (not including dividends) over that period. Revenues and profits have grown strongly in that time, and the group has begun paying its shareholders a dividend. Can the stock continue to keep smashing the returns from the large-cap index going forward?

Half-year numbers

A glance at the group’s half-year numbers released today reveals that Patisserie has solid momentum across its business right now. For the half year to 31 March, group revenue climbed 9.1% to £60.5m and diluted earnings per share increased 13.2% to 8.92p. Sales from the company’s website rose an impressive 63% to £2.6m. Net cash on the books increased to £28.8m, up from £16.2m last year and the group hiked its interim dividend by a healthy 20% to 1.44p per share.

Executive Chairman Luke Johnson was upbeat about the results, commenting: “The group has delivered a strong set of results in a sector which has well-documented challenges. Our vertically integrated and flexible business model enables us to deliver consistent profits with our affordable treats remaining popular with our very diverse customer base.” He added that the firm remains focused on organic growth and with a strong balance sheet, continues to assess acquisition opportunities which will have a strategic and cultural fit.

Compelling investment thesis

Analysing the numbers, the outlook for CAKE shares looks good, in my opinion. Revenues and profits are trending up, cash flow is strong and dividends are rising. Furthermore, with a high current ratio, a low debt-to-equity ratio, and an attractive return on equity, it also meets three key must-haves that Warren Buffett looks for in a stock when investing.

The shares currently trade on a forward P/E of 23 and while that’s not an overly cheap valuation, I think it’s a fair price to pay for a ‘slice’ of this fast-growing niche business. I believe Patisserie Holdings shares have considerable long-term potential.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has no position in Patisserie Holdings. The Motley Fool UK has recommended Patisserie Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »

Investing Articles

2 FTSE dividend shares yielding more than 6% with P/Es of less than 9!

Harvey Jones picks out two brilliant FTSE 100 dividend shares that yield more than 6% but are selling at strangely…

Read more »