Yesterday, I looked at three FTSE 100 companies whose share prices have been flying in recent times. Today, I’m turning my attention to the market’s second tier and scanning for stocks showing similar momentum.
Great gains
I last checked in with fantasy figurine maker Games Workshop (LSE: GAW) in March. Back then, I suggested its stock was still worth buying, despite being on a higher valuation relative to its average over the last five years. Games is up 56% since.
Whether this kind of form can be sustained in the near term is hard to say. On one hand, trading remains excellent with the mid-cap recently saying it expects sales and pre-tax profit for the year to 2 June to be roughly £254m and “no less than” £80m, respectively. The fact it rewarded staff with a total of £5m in bonuses over the last year should also keep them incentivised to hit targets.
On the other hand, Games now boasts a price/earnings to growth (PEG) ratio of 4.9, suggesting prospective buyers will now be paying a very high price relative how quickly profits are expected to rise. This remains a great company but one I’d now be more tempted to catch once things cool down.
Another stock that’s in danger of being issued with a speeding ticket is price comparison website Moneysupermarket.com (LSE: MONY). If you’d bought shares in mid-December, you’d be toasting a gain of around 50%.
This performance has been backed up with some decent trading. As my Foolish colleague Harvey Jones reported in April, Moneysupermarket’s decision to rebrand itself has been positively received by customers. Q1 revenues rose 19%, for example.
As you might expect, the £2.1bn-cap scores highly on quality indicators, such as high returns on capital employed and operating margins — not unlike property portal Rightmove and automotive marketplace Autotrader.
By contrast however, Moneysupermarket offers a far better yield of 3.5%. That’s not the biggest you can find in the FTSE 250, but it’s good for what has traditionally perceived as a growth stock.
Perhaps the most surprising of today’s terrific three is homeware retailer Dunelm Group (LSE: DNLM). I’ve been wary of the company in the past due to the huge competition it faces. Going by recent trading however, the £2bn-cap is certainly proving me wrong.
As a result of “very good like for like growth” in the last couple of months and “unseasonably favourable weather conditions” so far in 2019, management now anticipates pre-tax profit for the financial year will come in ahead of previous expectations, at around £124m-£126m.
Dunelm’s stock is now a stonking 82% higher than it was at this time last year and trades on a PEG of 3.9 (far higher than the 1.0 or less legendary growth investor Jim Slater encouraged investors to search for).
With no sign the UK is to bask in a heatwave anytime soon however, it’s possible the shares might continue creeping up until full-year figures are confirmed.
Buyer beware
Naturally, what’s popular in the market is rarely inexpensive and that’s the case with all of the above. Forecast price-to-earnings (P/E) ratios for Games Workshop, Moneysupermarket.com and Dunelm Group are 25, 22 and 20, respectively.
As such, it’s worth considering how likely it is that holders will continue to be satisfied by results. With high expectations comes a greater chance of being disappointed.
