Growth stocks have the potential to give my portfolio a large boost through share price appreciation. However, it’s key for me to get in before the rest of the crowd. Sometimes, I can miss the boat and unfortunately failed to enjoy a lot of the rally. But here’s one under-the-radar stock I think hasn’t taken off yet.
That brand we forgot about
The firm I’m referring to is WH Smith (LSE:SMWH). Wait, that stuffy old company that has dull stores on the high street? Yes!
I used to have the same thinking and would never dream of buying the firm. However, my viewpoint changed when I read the full-year results report that came out in late January.
The business crushed it last year, posting its highest revenue for the past five years and the highest profit before tax since 2019. On top of this, the business boosted the dividend per share payment to 28.9p, a large jump from the 9.1p from 2022.
Here are some of the key factors driving growth right now.
An efficient operation
To start with, the focus is all on travel revenue (such as stores in airports). This contributed £1.3bn of the £1.8bn total group revenue for last year. Travel revenue jumped 43% year-on-year, showing the opportunity that exists in these locations.
Thanks to the structure of leases in airports and other travel locations, it’s well positioned to retain this existing revenue as well as push for more store openings this year. It’s also pushing for growth in the US, which is a huge opportunity.
Another factor helping the brand is that its high street stores are outperforming the general trend. Revenue from the 514 stores was basically unchanged versus the previous year. Given the broader trend of lower high street spending, this is actually a good performance.
Granted, this isn’t going to be an area of high growth. But it’s a cash cow, allowing the company to take the steady income stream from these stores and focus on other areas.
The ship hasn’t sailed yet
Of course, there are risks associated with the company. The attempted marketing rebrand at the start of this year had to be dropped after a huge backlash from the trials. This worries me a bit that the firm’s slightly out of touch with what the consumer wants to see from the firm.
Another is the eventual acceptance that the high street stores might need to be closed if performance dips. It might only remain a cash cow for so long before it doesn’t make sense to keep them operating.
Even with these factors, I still see this as a growth stock that could do very well over the coming couple of years. The share price is down 15% over the past year, which tells me I haven’t missed the boat at all.
It could take time (and more positive earning reports) before it starts to move higher. Yet I’m seriously considering buying some of the stock now ahead of any potential move, and feel other investors should think about doing the same.
