As we transition to 2015 one question looms large – can the winners from last year continue their winning ways? Below is a look at three of last year's big winners – all of whom posted gains of more than 60%.
Domino's Pizza Enterprises Ltd (ASX: DMP)
Domino's has been very successful because they are very aware of how to engage its key demographic – using cutting edge technology to allow easier and quicker ordering by those aged between 14 – 29 years. The Pizza Mogul platform launched in July 2014 catches on to the 'me-tailing' revolution and should continue to drive sales by rewarding customer engagement and innovation through a volume based commission.
Japan sales were a major driver of its bumper 2014 financial year results. However paltry same-store sales (SSS) growth of 1.2% in the first quarter of 2015 and the need for a US $29 billion fiscal stimulus package by the government to try and drag the economy out of recession dampens the outlook.
In addition to the above concern is the stock's high valuation. At a P/E of 51x it is nearly as expensive as the wildly successful U.S restaurant chain Chipotle Mexican Grill, Inc, even though it only registered corporate level same-store sales growth of 8.4% compared to Chipotle's 19.8% in the most recent quarter.
Shine Corporate Ltd (ASX: SHJ)
Shine was the standout performer in the very impressive legal sector. It has made three acquisitions so far in FY15 to strengthen its position in the personal injury litigation market in line with its 'inch wide mile deep' strategy. Using historical performance as a guide these investments should drive profitability in years to come.
The company has made increasing brand awareness a key objective for the year. Of significant aid will be Erin Brockovich in an ambassadorial and consultant role, as well as the presence of other high profile employees such as prominent human rights lawyer George Newhouse. Further continued focus on cost and internal efficiencies such as the rollout of its next generation case management system T2 is likely to improve margins.
Despite the above, I think Shine's competitor Slater & Gordon Limited is a better bet.
Sirtex Medical Limited (ASX: SRX)
Sirtex is by far the most impressive of the three companies, increasing 142% during 2014. Its liver cancer treatment provides radiotherapy from the 'inside out', enabling a key cancer treatment previously not possible because an external laser would cause damage to delicate tissues surrounding the liver.
According to the World Health Organisation, liver cancer is the second most fatal form of cancer with 745,000 deaths in 2012. In the 2014 financial year, the company sold 8,561 doses of its revolutionary drug, so there is a large pool of unmet demand.
The majority of these were derived from the US (5,836 doses). However, liver cancer is not very common in the US, with an age-standardised liver cancer rate of 3 per 100,000. The incidence is much higher in Asia (i.e. China at a rate of 25.7), but this segment only made up 4 % of sales. Throw in the fact that positive results from its SIRFLOX clinical study due out the first quarter of 2015 could lead to the drug becoming a first-line treatment and the possibilities are endless.
Whilst I think Sirtex will likely have a good long term future and could perform strongly this year, biotech stocks carry considerable risk and may not be suitable for all investors. Also, it is very likely that the market has already priced in a positive result from the SIRFLOX study, which means early adopters might be presented with a very nasty surprise. I would recommend waiting for the results to be announced before jumping into the stock.
