Shares of pet specialist Greencross Limited (ASX: GXL) have surged early in today's session, climbing 94 cents or 12.6% to be trading at $8.39. The jump in price came immediately after the company provided a trading update for the 21 weeks to 23 November 2014 in which it reconfirmed its earnings guidance of 36 cents per share for FY15.
So What: Greencross' shares have been on a sharp decline in recent months with the stock still sitting more than 22% below its August all-time high, even after today's movement.
However, the company today announced that like-for-like (LFL) sales across its veterinary and retail divisions had improved since it last updated the market in October, when it revealed that sales in its City Farmers business had so far come in below expectations.
Today's update highlighted:
- Petbarn LFL revenue growth of 6.5%, year to date
- Animates (NZ) LFL revenue growth of 5.9%, year to date; and
- Greencross Vet LFL revenue growth of 6%, year to date
Greencross' CEO Jeffrey David said: "With strong flow through of this accelerating growth to the bottom line, Greencross remains confident of delivering our guidance of underlying EPS of 36 cents per shares in FY2015, representing a 50% increase on FY2014".
Now What: Despite the stock's recent fall, it is still trading on a projected P/E ratio of 29.9 times earnings, which would appear expensive – particularly when the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) is trading on an average P/E ratio of 15.3 times.
However, when you consider Greencross' outstanding growth prospects, $8.39 seems like a reasonable price to pay. While it's not a bargain, the stock could certainly deliver outstanding returns from its current level.
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