OrotonGroup Limited reports gangbusters growth, but is it a buy?

The shares of luxury handbag and fashion retailer OrotonGroup Limited (ASX: ORL) have been an early mover on the ALL ORDINARIES (Index: ^AXAO) (ASX: XAO) index and jumped higher by 3.5% at the open following the release of a strong full year result.

Although sales in FY 2016 grew just 3% to $136.4 million, the market appears to have been impressed with Oroton reporting a massive 31% increase in net profit after tax to $3.4 million. According to management the strong bottom line result was driven through margin expansion brought about by careful management of costs and currency.

The closure of loss-making Oroton stores, an increase in sales from its online store, and an improved performance from its international business meant the retailer’s net margin increased from 1.97% in FY 2015 to 2.5% in FY 2016.

A better performance from its Gap stores also played a part in the good result. Management revealed that losses were significantly reduced thanks to its focus on marketing, customer engagement, the supply chain, and cost control.

Both brands posted positive like for like sales, with Oroton’s like for like sales growing at 1% and Gap’s growing by 6% year on year.

For the year ahead management is focusing on further development and growth of its core Oroton brand and eliminating losses from both its international business and the Gap brand.

It expects new store designs and product categories, an expanded distribution to Myer Holdings Ltd (ASX: MYR) and David Jones, a refocus on seasonal handbags for younger demographics, and a tie-up with the Qantas Airways Limited (ASX: QAN) Frequent Flyer program will result in further earnings growth.

So far, so good, it seems. The first seven weeks of FY 2017 have been encouraging and like for like sales are positive. But is it a buy? With its full year earnings per share coming in at 8 cents, its shares are changing hands at almost 30x full year earnings.

Whilst things are looking to be much improved, it’s a touch expensive now in my eyes and I would much rather buy the Premier Investments Limited (ASX: PMV) dip today.

Alternatively, these high quality shares could be even better investments. Each has what it takes to take most portfolios higher in my opinion.

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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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