The run-up in share prices of two particular stocks recently has not just beaten but trounced the market return.
Higher earnings, expanding business development and very promising outlooks all have come together to make Domino's Pizza Enterprises Ltd (ASX: DMP) and TPG Telecom Ltd (ASX: TPM) hot stocks among investors.
For Domino's Pizza Enterprises Ltd, the secret sauce for its 40% gain in six months is the stunning earnings growth and plans for further expansion. Its takeaway store chain in Japan has become the number two pizza franchise there. Over the next five years, the total store numbers are projected to rise steeply from around 340 now to around 600-700. That's on top of the regular franchise growth here in Australia and in Europe.
The stock is priced at 47 times earnings, reflecting high growth expectations. However, I still think there is just too much heat in the price, with consensus forecasts for annual earnings growth at less than half the price-earnings ratio. The growth story is great, but let this dough set and cool off a bit before handling.
TPG Telecom Ltd, on the other hand, is a little more reasonably priced. After a 23% gain over the past six months, the stock seems ready to set new highs and keep on going from there. Its big plus is the high-speed broadband service the telecommunications company offers. Its network is set up in major urban areas and will run as an NBN alternative, allowing the company to service retail customers, as well as act as a wholesale service provider for other ISPs and telecoms.
This expands its income streams and gives it competitive advantages as a low-cost operator. Priced at 30 times earnings, the stock could gather momentum as earnings are forecast to grow around 21% annually over the next several years.
Telecommunications is a fast-paced, highly competitive industry, but when a company can set itself as an integral part of the service infrastructure, investors could be onto a real winner here. Having some TPG Telecom in your growth portfolio would be a good addition.
