One of the most important factors when identifying a company in which you can 'get set and forget' is to consider longevity and the sustainability of a company's operations.
Whether it is newspaper publishers, video recorder manufacturers or horse drawn buggy makers – not realising the potential for structural change which can leave a business in terminal decline – is a recipe for investment disaster!
Sustainability is a major reason investors feel comfortable investing in a blue-chip stock such as Woolworths Limited (ASX: WOW) as they know it's as good as certain that customers will still be heading into Woolies' supermarkets for decades to come. Likewise, investors could feel equally as certain that clients will continue to require the legal services provided by leading compensation law provider Slater & Gordon Limited (ASX: SGH).
Here are three reasons to be positive about the future growth potential of the company:
- Investors in Slater & Gordon have enjoyed total shareholder returns of 33.5% per annum for the past five years thanks to a fast growth business model in Australia. While growth in the domestic operations is obviously slowing – in FY 2014 domestic revenue growth was just 4% – the division is still likely to grow at a rate faster than inflation.
- In 2012, Slater & Gordon entered the UK market via the $80 million acquisition of Russell Jones & Walker. Given the size of the UK market and management's view that there are significant opportunities for consolidation, it is not unreasonable to expect the group could reproduce its Australian performance in the UK.
- Analyst consensus suggests earnings per share could reach 39.4 cents per share in FY 2016. With the share price currently at $6.15 this equates to a price-to-earnings ratio of 15.6x, arguably not an unreasonable price for a company with a solid track record and future growth potential.
