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2 growth stocks I’d consider buying right now

Image: Rhythmone: Fair use

The latest set of financials from RhythmOne (LSE: RTHM) have hardly set the market on fire during Monday business, the stock dealing 3% lower from last week’s close.

But this is hardly a catastrophic state of affairs given RhythmOne’s rampant rise of late (the digital advertising specialist has gained 29% in value during the past month alone and hit record tops of 48.5p just last week).

Indeed, I view today’s pullback as a mere pause for breath before a likely fresh charge higher.

Chained to the rhythm

RhythmOne announced today that pre-tax losses narrowed considerably in the 12 months to March 2017, to $14.9m. This was a vast improvement from the $77.2m loss endured in the prior year.

The results underline the success of RhythmOne’s two-year transformation programme that has seen it migrate towards the fast-growth mobile, video and programmatic segments. The business saw revenues from these core operations shoot 28% higher last year, to $149m.

And RhythmOne has kept on splashing the cash in recent times to keep the sales streaming in. As well as investing $5m in product development at the core, the business also snapped up mobile rewards provider Perk Inc in December in an all-stock transaction valued at some $42.5m.

The City certainly expects RhythmOne’s massive revamp to pave the way for sustained, and electrifying, earnings growth from now on.

The San Francisco techie is expected to record earnings growth of 1.6p per share in fiscal 2018, resulting in a chunky P/E ratio of 28.2 times. But some would argue this premium is a fair rating given RhythmOne’s exceptional bottom-line prospects (indeed, the calculator bashers have chalked in an 85% rise in 2019 also).

I reckon today’s mild weakness provides an additional incentive for investors to pile in.

Turnaround titan

RhythmOne isn’t the only London-quoted stock expected to punch explosive earnings growth in the years ahead, of course.

Chemicals colossus Melrose Industries (LSE: MRO), for instance, is expected to see earnings climb 118% during 2018 following last year’s move back into bottom-line growth. And an extra 16% advance is chalked in for 2019.

Reassuringly the Birmingham company advised in recent days that trading remains “in line with expectations,” and that it was still on the hunt for another acquisition. Promisingly Melrose also advised that its Nortek business (bought in August 2016) “continues to improve its performance.” Underlying operating profit here galloped 35% higher during September-December.

Of course, the cyclical nature of the engineering sector, allied with the risks of hoovering up failing businesses and introducing huge restructuring, carries no little degree of risk.

However, Melrose has a terrific track record of creating shareholder value through its purchase of bombed-out assets before ultimately selling them on. And I believe this makes the stock fully deserving of a slightly toppy forward P/E multiple of 23.2 times. I believe the company should prove a sage pick for long-term investors.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of Melrose. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.