Can Sports Direct International Plc Overtake ASOS plc, Burberry Group plc, NEXT plc And Marks and Spencer Group Plc?
News emerged this week that Sports Direct (LSE:SPD) will enter a joint venture in Australia and New Zealand, thereby increasing its international exposure. Indeed, Sports Direct needed positive news flow, after market sentiment had weakened over the last few weeks in response to shareholder discontent at the scale of Mike Ashley's potential bonus.
So, how does Sports Direct compare to four of its key UK-based but internationally focused peers? And, more importantly, which one(s) should you invest in?
Even though shares have pulled back by 9% over the last month alone, Sports Direct continues to trade on a relatively high valuation. For example, its price to earnings (P/E) ratio is 18.2, which is considerably higher than the FTSE 100's P/E of 13.8. However, where Sports Direct really appeals to investors is with regard to its growth potential. Indeed, at least partly as a result of its international exposure, Sports Direct is forecast to grow earnings by 26% this year and by 15% next year. This means that a high P/E ratio becomes a relatively low price to earnings growth (PEG) ratio of 0.9, which makes shares in the company relatively attractive to investors.
It's been a dramatic year for ASOS (LSE:ASC), with the company disappointing investors with its update -- especially in its Chinese operations where losses were wider than anticipated. In addition, orders were suspended due to a fire at the company's warehouse and its share price has dropped by over half. Still, next year could be a lot different as the company expects sales to improve significantly in key markets such as China, and the 18% fall in profits pencilled in for this year should be fully reversed as the company's bottom line is due to bounce back strongly in 2015. ASOS, although experiencing difficulties, could be a strong long-term play.
As with Sports Direct, Burberry (LSE:BRBY) has felt the wrath of shareholders over the size of payments made to new CEO, Christopher Bailey. However, Burberry continues to offer its investors huge potential and it is well placed to capitalise on improvements in the macroeconomic outlook for emerging markets. Indeed, shares have disappointed in 2014 (down 6%) as the Chinese growth story has stuttered, however with EPS growth of 9% forecast for next year, Burberry remains a promising growth stock.
Next's (LSE:NXT) cash flow continues to be highly impressive. Indeed, it is being used sensibly, with the company engaging in a simple, yet effective special dividend policy that includes share buybacks only when shares in the company are deemed to offer good value. Aside from this, Next remains a UK high-street stalwart, but also delivers across Europe and is likely to continue to expand internationally. Certainly, this may take place at a slower pace than many of its rivals, as Next continues to see potential in the UK. However, EPS growth of 11% this year shows that the company remains a potent growth play.
Marks & Spencer
The turnaround of M&S (LSE:MKS) is taking longer than anyone anticipated. Certainly, the company is making improvements to its website and its in-store offering. However, it has taken the view that the UK must first be put into order before it renews its efforts to expand abroad. Therefore, growth is set to be in-line with the wider market this year. Despite this, M&S could be a strong medium term play. Its brand is very popular overseas and this will help it to expand and gain customer loyalty at a brisk pace. Indeed, with 11% earnings growth expected next year, M&S could now begin to bear the fruits of its (significant) labour of recent years.
Peter Stephens owns shares in M&S. The Motley Fool recommends Burberry Group. The Motley Fool owns shares of ASOS.