In the last 12 months the Collins Foods Ltd (ASX: CKF) share price has rallied strongly and climbed over 28% higher.
Despite this strong gain I still believe that Collins Foods shares are trading at a bargain price and would be a great investment today.
Are its shares in the bargain bin?
I think they are. At just over 16x trailing earnings, I think this KFC restaurant operator's shares are great value given its current growth profile.
In FY 2017 Collins Foods delivered a 14.1% increase in underlying net profit after tax to $34.3 million and announced the acquisition of 28 KFC restaurants located in Tasmania, South Australia, and Western Australia for $110.2 million.
These 28 stores are expected to add at least $15.7 million to the company's EBITDA, pricing the deal at a reasonable 7x EBITDA.
Further to this, management plans to add 8 to 10 new stores in Europe and 8 to 9 new stores in the Australian market each year for the next five years.
I believe this and its solid same-store sales growth will result in strong bottom line growth for the next few years that justifies its shares trading on a much higher price-to-earnings ratio.
Whilst I wouldn't expect its shares to command as much of a premium as rival Domino's Pizza Enterprises Ltd. (ASX: DMP), I wouldn't be at all surprised to see Collins Foods rerate to around 18x earnings.
Overall, I think this potential rerate and its strong bottom line growth could lead to solid share price returns for investors over the next 12 months. This could make it an opportune time to snap up shares.
