While the ASX has slumped by 3% since the turn of the year, shares in Domino's Pizza Enterprises Ltd. (ASX: DMP) and Macquarie Group Ltd (ASX: MQG) have soared by 86% and 41% respectively. A key reason for such vast outperformance is their ability to post strong earnings growth which, given the outlook for the Australian economy, could allow them to command an even greater premium.
In the case of Domino's, its outlook has been improved with the acquisition of the Pizza Sprint chain in France for around €35m. The acquisition will be immediately earnings accretive on a pro-forma basis by around 4%, with the 89 stores being acquired generating EBITDA of €3.5m in the previous financial year.
The store network being acquired is a good fit with Domino's since it is in close proximity to the company's commissary in Vertou France, and it means that Domino's has revised its future store count forecast in Europe to 1,500 stores from the previous 1,350.
Clearly, the acquisition cements Domino's position as the leading pizza brand in France and, looking elsewhere, it is seeking to do the same in Asia where it is aiming to double its store numbers.
This, alongside the adoption of a successful online ordering system and the embracing of social media, is keeping Domino's a step ahead of its rivals. And, with new menu options broadening its appeal beyond just pizzas, it seems to be well placed to become the 'go-to' place for delivered fast food.
As a result, its bottom line is forecast to rise by 25.6% per annum during the next two years, which makes its price to earnings growth (PEG) ratio of 2.3 appear to offer good value for money – especially when such strong, consistent growth stocks are becoming a rarity.
Similarly, Macquarie's acquisition of ANZ's Esanda Dealer Finance unit for $8.2bn has nearly doubled its motor vehicle finance portfolio, with its assets in this space rising to $17bn. To help fund the purchase, Macquarie has successfully completed a $400m capital raising and, encouragingly, the deal means that Macquarie's profit forecasts have been upgraded.
The company is now expected to grow its bottom line at an annualised rate of 11.8% during the next two years, which puts it on a PEG ratio of just 1.3.
The acquisition fits in with Macquarie's relatively new strategy of focusing on annuity-style businesses which are less leveraged to financial markets and therefore provide a degree of stability during an uncertain period for the global economy.
Macquarie's share price, though, may prove to be somewhat volatile since it has a beta of 2 and this means that its shares should move by twice the price change of the wider index.
For investors who can cope with a relatively volatile shareholder experience, though, Macquarie's track record of increasing its bottom line by 9.2% per annum over the last five years indicates that its shares will continue their excellent run over the medium term.
