The Australian stock market has dropped sharply over the last week or so on the back of weak international leads, growing geopolitical risks and, more locally, a rising unemployment rate. Although it is painful to watch as our portfolios fall in value, these situations also provide us with a great opportunity to buy shares trading at cheaper prices.
One of the stocks that has certainly caught my eye is Greencross Limited (ASX: GXL). Greencross is a company that has been on my watchlist for some time now and its recent dip could be enough for me to buy a parcel of shares in the near future.
The stock recently set itself a new all-time high at $10.48, but has since retreated 7% to $9.75. At that price, it has still managed to return nearly 1,400% for shareholders who bought in at the beginning of 2011.
A little more about Greencross Limited
Greencross Limited is a veterinary services provider which has utilised a roll-out strategy to significantly boost its market share over the last few years. While it has acquired a number of quality veterinary practices and various retail brands, its most recent acquisition of City Farmers has brought its share of the market to an estimated 7.5%. Management has stated they are aiming for a 20% share.
Another reason I like Greencross' prospects is a recent shift in society which has seen pets becoming more a part of the family. As a result, pet-owners are becoming more willing to pay for premium care for their loved ones.
The various acquisitions made by Greencross should help accelerate the company's earnings over the coming years. While Morningstar forecasts suggest the company will deliver earnings per share (EPS) of 24.6 cents per share (cps) this year, that figure is expected to expand to 42.2 cps in 2016 – a compound annual growth rate of 31%.
While I don't think Greencross' shares are in 'bargain' territory, given their projected P/E ratio of 39 times, I do think it's a reasonable price to pay for such a high quality company with strong growth prospects. I could very well make a move into the stock in the near future.
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I am also strongly considering increasing my stake in another ASX stock. Not only does this company offer fantastic growth potential but also a fat, fully franked dividend yield.
