If I had to pick just one company in the FTSE 250 to buy and hold forever, I would pick fast food business Domino’s Pizza (LSE: DOM).
Over the past 15 years, this company has smashed all expectations and as the business has gone from strength to strength, shareholders have been well rewarded.
Indeed, over the past 15 years, the stock has produced an annualised return of 19.4%, turning every £10,000 invested in the business into £142,910. There’s only a handful of other firms that have produced the same kinds of returns for investors during this period.
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A small setback
Unfortunately, after the stock peaked at 375p in August 2016, Domino’s investors have been left wanting. At the time of writing, the stock is nearly 40% below this all-time high.
Several things have gone wrong for the company over the past three years. For a start, it has fallen out with several franchisees, who are concerned about the group’s rate of expansion and the impact it will have on their profits. Franchisees also want more help from the parent business to help cover rising costs. On top of this, the company’s international expansion is not going to plan. Management wanted this part of the business to break even in 2019, but weak sales growth means yet another year of losses.
Still, despite these factors, the underlying business continues to expand. UK sales increased by 3.1% on a like-for-like basis in the 13 weeks to the end of March. If this trend continues, analysts have pencilled in earnings growth of 5.8% for the year as a whole, below the five-year average of 19%, but impressive considering the headwinds the group is facing.
And based on these forecasts, shares in the fast food group are dealing at a forward P/E of just 14, the lowest valuation in five years, which looks too good to pass up in my opinion. Historically, the company has commanded a valuation of 30 times earnings, implying that when franchisee relations settle down, the stock could double from current levels.
Cash is king
The second FTSE 250 growth champion I think has the potential to double investors’ money again is Wizz Air (LSE: WIZZ).
Shareholders who bought into the low-cost airline’s growth story shortly after its IPO in the summer of 2016, have already seen a return of more than 100%, and with City analysts expecting earnings growth to average nearly 20% per annum for the next two years, I think there’s a good chance the shares could double again from current levels.
Based on current City forecasts, the stock is trading at a 2021 PEG ratio of 0.4, and if you strip out cash, the valuation becomes even more attractive. At the end of its 2019 financial year, the company had a net cash balance of £1.2bn, which is around half of its £2.4bn market capitalisation at the time of writing.
Based on analysts’ current projections, the shares are dealing at a 2021 P/E of 11.1, Wizz’s colossal cash balance suggests its cash-adjusted valuation could be around half of that, which suggests there could be a potential upside of nearly 100% for the stock from current levels when compared to the sector average of P/E of 10.1.
