Since listing in May 2014, Spotless Group Holdings Ltd (ASX: SPO) has delivered impressive returns for investors. Indeed, shares in the facilities management company are up 13% since its IPO, which is well ahead of the ASX's gains of 2% over the same time period. With results released recently that show the company is making very encouraging progress, there still could be a long way to go for shares in Spotless.
Results
Indeed, full-year results released last week were slightly ahead of company guidance. For example, net profit was 3% higher than forecast and, encouragingly, the company confirmed its guidance for 2015 too. It is expected to increase the bottom line at a rate of 75.8% per annum over the next two years, which if met would be hugely impressive and go a long way to justifying the company's current valuation.
That's because Spotless currently trades on a P/E of 32.6, which is more than double the ASX's P/E of 16.2. However, when the company's earnings growth forecasts are taken into account, it generates a price to earnings growth (PEG) ratio of just 0.43. That's hugely appealing and indicates that there could be considerable upside ahead for shares in Spotless.
Income potential
Although Spotless doesn't pay a dividend at present; choosing instead to reinvest profits, it is expected to pay out around 63% of profit as a dividend in financial-year 2016. With the company's profit set to be vastly higher at that point, that could mean big dividends down the line. Assuming the company's share price stays where it is, Spotless could be yielding as much as 4.7% in just over a year's time. It could, therefore, go from having no income appeal to being a hugely attractive dividend stock.
Looking ahead
As with any company that is expected to deliver stunning earnings growth, there is a risk that Spotless will not meet its guidance. However, with a PEG ratio of just 0.43, the market appears to be giving shares in the company a fairly wide margin of safety so that, even if earnings forecasts are missed, Spotless could still deliver capital gains. Therefore, due to its low valuation, strong growth prospects and exciting income potential, the 13% gains since listing in May could be just the start for investors in Spotless.
