2 stocks that could double your money

G A Chester highlights two fast-growing, profitable companies with potential to deliver terrific returns for investors.

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The retail sector is under the cosh. It’s been emphasised again today, with another blow to the high street coming from department store chain House of Fraser, which has announced it’s to close 31 of its 59 shops, including its flagship London Oxford Street store.

However, amid the widespread doom and gloom, some retailers are thriving. Premium lifestyle brand Joules (LSE: JOUL), with its quirky take on British heritage style, is one such business. Founded in 1989 and floated on AIM just over two years ago, the company’s revenues and profits are rising fast — as is the share price. It was 160p at the IPO and has more than doubled to 340p. A 3.3% rise today follows the release of a positive trading update from the company, which now has a market cap of £300m.

Stylish growth stock

Joules told us that revenue for its financial year ended 27 May increased 18.4% (18.8% at constant currency) to £185.9m. Retail revenue was up 15.9%, with continued growth across the group’s UK and Republic of Ireland store estate and a “a very good e-commerce sales performance.” Wholesale revenue increased 24% (25.7% at constant currency), driven by strong demand from both its UK and international wholesale customers.

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Analysts had upgraded their profit forecasts after the company’s half-year results in January and there’ll be a further small upgrade after today’s update, because we were told:“The board anticipates reporting that the underlying profit before tax for the period will be marginally ahead of analyst expectations.” The consensus had been for £12.6m, Joules informed us.

I reckon we’re looking at earnings per share (EPS) in the region of 11.75p — a 28% increase on the prior year. This would put the company on a price-to-earnings (P/E) ratio of 29 at the current share price. As the company pursues its strategy of further developing the brand in the UK and target international markets, I can see it delivering annual EPS increases above 20% and maintaining its P/E rating for some time to come. If so, investors today would double their money within four years. As such, I rate the stock a ‘buy’.

Sun, sea and profit

Online retailer of beach holidays On The Beach (LSE: OTB) is another fast-growing, profitable company that I rate a ‘buy’. A start-up business in a terraced house in Macclesfield in 2004, it listed on the stock market in September 2015 at 184p a share. The shares are now 510p, the market cap is £665m and the company is a constituent of the FTSE 250 index.

The shares have actually been considerably higher than their current level, reaching 650p just a month ago when issues resulting from the Monarch Airlines collapse cast a pall over its half-year results. Rare and temporary setbacks outside a company’s control can often provide a good opportunity for investors to buy, because the market tends to overreact. I believe this is the case with On The Beach.

City analysts are forecasting EPS of 21.1p for the company’s financial year ending 30 September. This would represent 20% growth on the prior year and give a P/E of 24.2. As with Joules, On The Beach is growing its UK business and expanding into targeted international markets. Again, I see a company that looks capable of notching up annual EPS increases above 20%, maintaining its P/E rating and potentially doubling investors’ money over a relatively short period.

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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.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Joules Group. 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.

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