The BWX Limited (ASX: BWX) share price has risen by 8.8% over the last year, here's why I think it has a lot more growth.
BWX is one of Australia's largest beauty businesses. Its main brand is called Sukin, which is Australia's largest natural beauty brand.
BWX has already achieved great growth for shareholders but I think there's a lot more to come because of the following reasons:
Popular product and growing industry
There's no doubt that many of the popular global beauty brands help their consumers achieve the desired beauty results. However, there is a growing trend among consumers who are concerned about the effects the 'unnatural' brands are having on our bodies and the earth in some way.
That's why BWX and Sukin are seeing such a big increase in revenue in Australia. In its annual result for FY17 management revealed that domestic Sukin sales increased by 43.5% over the year. That's a strong result for a business that's already number one.
If more people keep making the switch to Sukin and use more of the product range then there could be more strong sales growth to come.
Increasing margins
One of the key things I look for when a business grows is increasing margins. The economies of scale effect is a great factor for the profit to grow faster than the revenue.
In its FY17 annual result management revealed that the gross profit margin grew from 62.1% to 65.5%. Management also revealed that the net profit after tax margin increased from 22.8% to 24.2%.
These are good signs and the bigger the business gets the more the margins should grow, helping the bottom line.
International sales
Australia is an exciting market for BWX, but a small one. The key to growth over the next five years will be how much it can grow sales internationally.
Management are making good headway in the UK with Sukin now being sold in both Boots and Holland & Barrett. BWX also has big potential in Canada and other countries that it's selling Sukin in.
BWX's recent purchase of Mineral Fusion in the USA gives it a great chance to expand in the USA, which is a huge potential market.
BWX's Sukin international sales grew by 103.2% in FY17.
Risks
BWX has a lot of competitors, some of them probably have advertising budgets the size of BWX's market capitalisation. There is nothing inherently defensive or unique about Sukin's products, if competitors start producing their own natural products then that could slow growth.
Fashion and beauty trends can change quickly and it's possible that other products could tempt consumers away from BWX.
Foolish takeaway
BWX is currently trading at 23x FY18's estimated earnings with a grossed-up dividend yield of 1.75%. I think this is a good price to pay for a business that grew underlying net profit after tax by 41.9% this year.
