One of the great things about being the challenger in a large market is that there's plenty of room to grow.
This is the theory behind interest in ASX small cap Stealth Group Holdings Ltd (ASX: SGI), which already has some impressive runs on the board.
The company, valued at $187.6 million, has grown total shareholder returns at a compound annual growth rate of 53.3% over the past five years, according to CMC Markets data, and it plans to keep on growing steadily.
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Hardware market ripe for disruption
Stealth Group is, in its own words, Australia's "leading independent distributor and retailer of hardware, industrial, safety and consumer products''.
This puts it in competition with Wesfarmers Ltd (ASX: WES)'s Bunnings and Metcash Ltd (ASX: MTS); however, it's naturally growing from a much smaller base.
What impressed me was its track record of sales growth, with 12 consecutive years of positive results and a compound annual growth rate of 18.8% over five years.
The company reported on 19 August that net profit was up 86.3% to $5.8 million, on revenue of $146 million, up 6.7%.
Stealth Group also had low debt levels, with gearing of 12.6%.
While these results were impressive, the company has even loftier ambitions in coming years.
Managing Director Mike Arnold said when releasing the full-year results that the company was aiming to hit $500 million in sales in FY28, with an EBITDA margin of 8% to 12%.
Key to the company's growth ambitions was its acquisition of Hardware & Building Traders (HBT), which was bedded down during FY26.
Mr Arnold said regarding the growth plans:
These targets are grounded in the progress already made on HBT's central billing rollout, our growing exclusive brand portfolio, and sustained demand across the network. We are confident in our ability to deliver on this strategy and to continue creating long-term value for shareholders.
I'm also impressed that Mr Arnold is the company's second-largest shareholder, according to company documents, and is therefore well aligned with the interests of the business.
Experts predict big things for the share price
Broker Morgans is also bullish on the company, initiating coverage on 30 October with a buy recommendation and a $1.85 price target, compared with $1.22 at the time of writing.
If that price target was achieved, it would be a 51.6% return.
Morgans said Stealth Group has the benefit of national reach without the cost of an owned store network.
The broker said the HBT purchase had "transformed SGI into a scalable, vertically integrated model with improved economics, which we believe the market is yet to price''.
