Three of the biggest FTSE 250 risers in the last year were Greggs (LSE: GRG), Moneysupermarket.Com Group (LSE: MONY) and Just Eat (LSE: JE).
While the mid-cap index rose by just 8.4% last year, these three stocks delivered gains of between 57% and 80%!
Can these fast-growing firms maintain last year’s growth momentum and beat the market again in 2016?
Greggs: Wow me!
Shares in high street baker Greggs rose by 80% in 2015. Shareholders also enjoyed 43.4p per share of dividend payments, equivalent to a yield of 6% at last year’s opening price of 722p.
The firm’s increased focus on food-to-go and coffee seems to be paying off. A rolling refit programme and a growing travel business also appear to be working well. During the first nine months of last year, Greggs’ like-for-like sales rose by 5.6%. Total sales growth was 5.1% and earnings per share of 54.1p are expected for 2015, 25% higher than in 2014.
City analysts seem less sure about 2016. Earnings per share are currently expected to grow by just 6.2% this year. With Greggs stock trading on 23 times forecast earnings for 2016, share price growth could also slow.
Selling now to lock in a profit might seem smart, but investors run the risk of missing out on further gains. Greggs has a history of beating expectations. I’d be tempted to sit tight until there’s concrete evidence of a slowdown.
Moneysupermarket: Follow-my-leader?
Moneysupermarket founder Simon Nixon enjoyed an early Christmas present at the start of December, when he banked around £98m by selling 32m of his shares in the firm.
The sale was one of two last year and took Mr Nixon’s stake in Moneysupermarket down to 6.9%. However, his position is unique and I’m not sure there’s any reason for investors to follow his example and sell.
Mr Nixon’s repeated share sales over the last couple of years are probably a sign he believes the firm is fairly valued and has reached maturity. But they’re not necessarily a warning of problems to come. It makes sense for Mr Nixon to diversify his personal wealth away from a single company at which he no longer works. To keep most of his wealth invested in Moneysupermarket would be a risky strategy.
Most private investors have more diversified portfolios and I’m not sure now is a good time to sell. Moneysupermarket’s 2015 forecast P/E of 26 doesn’t seem overly expensive when the firm’s 29% operating margin and strong cash generation is taken into account.
I rate Moneysupermarket as a hold for 2016.
Just Eat: Time to sell
Online takeaway ordering business Just Eat was a strong financial performer in 2015, gaining 60%. However, I think it may now be time to sell.
Just Eat shares currently trade on a 2015 forecast P/E of 86 and a 2016 forecast P/E of 54. Despite this, the firm’s operating profit margin of 13.8% is less than half that of Moneysupermarket and Just Eat doesn’t pay a dividend.
In my view, Just Eat’s valuation is only valid if earnings per share can continue to grow at the current rate of about 50% per year for several more years. That seems like a bit of a gamble to me, so I rate the shares as a sell.