Is Fantastic Holdings Limited a better investment than Nick Scali Limited?

Two of the best performing shares on the ALL ORDINARIES (Index: ^AXAO) (ASX: XAO) so far this year have come from the furniture retail industry.

Thanks largely to a booming housing market, year to date shareholders of Fantastic Holdings Limited (ASX: FAN) and Nick Scali Limited (ASX: NCK) have seen the value of their holdings rise by 20% and 34% respectively.

But is there an investment opportunity in either of these retailers today?

Whilst I would class Nick Scali as the superior business, at 18x full year earnings I feel its shares are starting to look fully valued now. Conversely with Fantastic Holdings’ shares changing hands at just 13x full year earnings, I think there is a lot more growth left in the tank of this one.

I believe Fantastic Holdings’ share price performance has lagged behind Nick Scali this year due to the troubles it was having with its soon-to-be-closed Adelaide-based Le Cornu store.

In its recent full year results Fantastic Holdings reported a 63% increase in continuing net profit after tax to $21.4 million. If you factor in the Adelaide Le Cornu store into the results then net profit after tax actually dropped to $11.4 million from $13.2 million in FY 2015.

But with the store being closed the company is now able to focus its attention on its core brands which have been performing incredibly well. Like-for-like store sales rose 11.8% in FY 2016, which is all the more impressive when you consider that this was on top of 12.2% like-for-like sales growth in FY 2015.

Rather pleasingly Fantastic’s CEO Debra Singh is very positive on the year ahead. She believes the retailer is positioned well for growth by expanding its store network, accelerating its market-leading connected customer sales channel, and leveraging the benefits of its wholly-owned manufacturing and direct import capabilities.

Another bonus is the great dividend it is expected to pay. In FY 2017 its shares are forecast by analysts to provide a fully franked 5.7% dividend according to CommSec.

As long as the housing market remains relatively strong, I believe at the current share price Fantastic Holdings would be a better investment than Nick Scali and a great pick for both growth and income investors.

Finally, have you looked to see if you own these three wealth destroying shares? Each could be harming your portfolio right now and might be best taken out if you ask me.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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