During the February reporting season I recommended 15 stocks that released results above consensus market forecasts. Six months later the performances for 12 of those stocks are spectacular and the downside for the remainder has been minimal.
Of the 12 stocks, I intend to focus on three high-growth businesses including Vocation Ltd (ASX: VET), SEEK Limited (ASX: SEK) and Greencross Limited (ASX: GXL) that have appreciated in price by 45%, 24% and 21% respectively. This has overwhelmed the 5% return over the same period offered by the S&P/ASX 200 Index (ASX: XJO) (INDEX: ^AXJO).
So should I buy, sell or hold these outperformers?
Firstly, I will answer this question by going back in time to look at any indicators that yielded clues to subsequent stellar gains. Apart from exceeding consensus expectations, the commentary on the following three high-growth stocks was revealing. Similarly, investors should be on the lookout for such indicators in the current reporting season.
1. Vocation Ltd
Listed on December 9 2013, Vocation is a provider of vocational education and training. The last interim report suggested that guidance would be upgraded in the near-term as revenue in the first half exceeded company guidance in the prospectus. The largest drivers of future earnings, student enrolments, were also strong across the group and extra impetus was expected from the annuity style income from its Solutions Business Channel.
2. SEEK Limited
Apart from exceeding consensus expectations, all the signs were there that SEEK had a plethora of growth options ahead. These centered mainly on the Asian region. A controlling interest in a Chinese online employment portal called Zhaopin was secured and was followed by an increased stake in another Asian portal called JobsDB. At the same time it announced the intention to acquire another employment service based in Kuala Lumpur called JobStreet.
As REA Group Limited (ASX: REA) has demonstrated, holding the number one position in the digital market place is vital to ensuring growth, which in turn allows such companies to innovate and invest further. This is promising for SEEK, as JobStreet is the largest online employment company in the south-east Asian region.
3. Greencross Limited
This company is the largest integrated consumer-facing pet care company in Australasia. Underlying earnings per share and the dividend increased by 10% at last February's half-yearly results. Growth was reasonably assured when management stated that the pet care market was highly fragmented and open for consolidation. At that point Greencross held just 5% of the market and was aiming for 20% in a sector that was growing at 5% per annum at the time.
Conclusion:
In the majority of cases quality stocks tend to enter a cycle of ongoing upgrades and positive news announcements. By looking at the prior reporting season back in August 2013 (excluding the as-yet unlisted Vocation), both SEEK and Greencross strongly exceeded expectations and outperformed over the ensuing months. In my opinion, all three stocks should be held or bought until the end of the upgrade and positive announcement cycle becomes apparent. How will you know? Stay tuned for a busy August reporting season.
