It's been a strong 2014 thus far for investors in Amalgamated Holdings Limited (ASX: AHD). Indeed, the hospitality, leisure and entertainment business has seen its share price rise by 20% since the turn of the year, which easily beats the 5% gains of the ASX over the same time period. However, with the company last week reporting profit that was 9% lower year-on-year and its shares trading on a relatively high P/E, is now still a good time to buy a slice of the company?
Exciting prospects
As mentioned, shares in Amalgamated Holdings currently trade on a high rating. In fact, after gains this year, they trade on a P/E of 20.2, which is 23% higher than the ASX's P/E of 16.4. At first glance, this may lead many investors to steer clear of Amalgamated Holdings' shares, however when the company's growth prospects are taken into account, it's a completely different story.
For instance, Amalgamated Holdings is forecast to increase its bottom line by a highly impressive 16% per annum over the next two years. This is well ahead of your typical ASX stock's growth rate and shows that the next two years are all set to be much better. Combining the forecast growth rate and current price earnings gives a price to earnings growth (PEG) ratio of 1.26, which is very attractive – especially when the ASX has a higher PEG of 2.07.
Income potential
Of course, the company is expected to pass on at least some of the growth potential to shareholders. Dividends per share are forecast to increase by 7.3% in each of the next two years, which makes an already attractive yield all the more impressive. Indeed, shares in Amalgamated Holdings currently offer a fat, fully franked yield of 4.2%. This continues to be lucrative at a time when interest rates are set to remain at their current 2.5% level for a good while yet.
Looking ahead
Although its current valuation seems high and its recent results were rather mixed, Amalgamated Holdings appears to have huge potential. Its high forecast growth rate means that shares appear to offer growth at a reasonable price, while its potential as an income play seems to be equally enticing. As a result, despite shares posting 20% gains in 2014, they could have further to go and Amalgamated Holdings could prove to be a strong performer moving forward.
