Three winners this earnings season

You have good days and bad days in investing, and earnings season has been particularly brutal. Yesterday alone, the top 10 movers on the ASX 200 put on more than 5 per cent and the worst 10 lost more than 5 per cent. Earnings season certainly takes no prisoners.
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Pleasingly, we’ve had a reasonably good earnings season, with a few companies we’ve previously highlighted performing well.

1300 Smiles (ASX: ONT)

The dental aggregator is still relatively small and has an enormous market opportunity ahead of it. So far it’s been successful in providing an opportunity for dentists who’d rather focus on their profession than running small businesses. Shareholders have also benefited, enjoying a 58 per cent gain since we highlighted its potential last December.

1300 Smiles manages each dental practice, taking care of the administrative functions and freeing up dentists to care for their patients. The company has 24 multi-dentist offices in Queensland, and delivered a 20 per cent jump in profit last year, off the back of a 28 per cent lift in revenue.

The company’s shares trade on a reasonably pricey 23 times last year’s earnings, but if the company can maintain its recent growth, today’s share price could well look low in hindsight. Investors need to be aware that the company has continued to issue shares to fund growth, and should assume that this dilution (and potentially a capital raising) could continue into the future, but that shouldn’t stop them taking advantage of one of the brighter opportunities on the ASX.

Automotive Holdings Group (ASX: AHE)

We highlighted the automotive sales group back in November, with the share price trading around $1.90. Thanks to revenue of almost $4 billion courtesy of strong growth from the automotive and logistics businesses, AHG delivered a 24 per cent increase in earnings before interest, tax and non-cash charges, and a net profit bump of 62 per cent. Shares were trading at over $2.80 this afternoon.

The company has benefited from acquisitions in both divisions, margins have improved, and investors were rewarded with a dividend increase.

Automotive Holdings remains a business that is inextricably linked with consumer and business confidence levels, and our interest in buying new cars from its 111 dealership franchises. The logistics operation provides a degree of diversification, but with more than two-thirds of profit coming from vehicle sales, it’s an investment for those confident that Australians will continue to buy new cars in the same sorts of numbers in the coming years. Despite the shares gaining almost 50 per cent in the past nine months, AHG doesn’t look expensive.

Woolworths (ASX: WOW)

Woolies disappointed the market this morning, with its first profit decline in more than a decade, but it’s a case of looking through the numbers to the underlying results. Almost 12 months ago, we highlighted the company as a good investment idea.

No one should be surprised that sales growth was moderate, and while the headline numbers were lower (thanks to a write-down in the value of its Dick Smith business), the company turned in a credible result.

For some businesses (like 1300 Smiles, above), it can be worth paying up for growth. For others, where growth is harder to come by, the price takes on greater importance. While shares have fallen a couple of percentage points this morning, they are still 13 per cent higher than a year ago and the company has paid out $1.24 per share in dividends – not a bad result from one of the safer businesses on the ASX.

Today’s price might be a little rich, but Woolies should hold a perennial position on all investors’ watchlists for opportunistic purchases when its shares are cheap.

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Scott Phillips is a Motley Fool investment analyst. He owns shares in Woolworths. You can follow Scott on Twitter @TMFGilla. The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).

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