Have £1,000 to invest? I’d consider these growth stocks crushing the FTSE 100

Want to beat the FTSE 100’s (INDEXFTSE: UKX) meagre returns? Consider these two stocks that are trouncing the index’s returns by double-digits.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Considering the FTSE 100 has only returned just north of 12% over the past five years, it’s no surprise that domestic investors are desperate for growth stocks to beat this pitiful performance from the LSE’s large-cap index.

Thankfully, there are two stellar small-caps I’ve got my eye on that are already thrashing the FTSE 100 and could continue to do so for a long time to come.

Dialing up growth in spades

The first is £230m market-cap customer communications specialist IMI Mobile (LSE: IMO). The company helps major clients such as Vodafone, Just Eat and Tesco keep in touch with their millions of customers online and through text messages. That includes everything from sending discount offers to booking appointments and providing updates on parcel delivery schedules.

In the year to 31 March, the company’s revenue rocketed 46% higher to £111.4m, thanks 7% organic growth and bolt-on acquisitions. Thus far, these acquisitions have been used to both broaden the company’s suite of products and move into growth markets like the US, Canada and Asia.

While profits last year grew more slowly than revenue, with adjusted EBITDA up 17.4% to £13.4m, the market clearly thinks this strategy has merits. Over the past year, the company’s share price has increased 89% and I see good potential for this tremendous growth to continue.

For one, the company is finding great success in signing larger contracts with existing customers as well as moving into new markets, like healthcare via a contract with the NHS. Plus, with some 85% of its revenue last year recurring in nature, it boasts high revenue visibility, solid margins and positive cash flow – which together, with a net cash position at year-end, provides further firepower for acquisitions.

IMI Mobile is not cheap (at 24 times forward earnings) but with a great record of organic and inorganic growth and a management team that owns a significant stake in the business, I see plenty of reasons to expect good things from the company in the future.

Painting a pretty picture

Another small-cap trouncing the FTSE 100 is cosmetics business Warpaint London (LSE: W7L). Since listing its shares in December 2016, their price has rocketed over 80%, well ahead of the meagre 5% return from the FTSE 100 over this period.

Half-year results released by the company this morning show why the market has so warmly embraced it. In the six months to June, sales rose 38.7% to £18.4m, thanks to strong like-for-like expansion of 7.3%, the acquisition of a competitor, and the purchase of its US distributor.

The acquisition of new brands pushed margins down during the period and adjusted operating profit of £2.8m was lower than the £3.1m notched up this time last year. However, the group made good progress on proforma margins. It should also benefit from rising margins again as it begins to sell these brands through its distribution network and cuts down on redundant costs.

Looking ahead, there’s great potential for the company as it benefits from fast-increasing demand for make-up products from young people, and pushes into massive markets such as the US and China.

At its current valuation of 17 times forward earnings, I think Warpain London is attractively valued considering its record of growth, profitable nature, net cash position, high insider ownership, and small-but-growing 1.68% dividend yield.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has recommended Just Eat and Tesco. 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.

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »