Is It Too Late To Buy Into Growth Stars Greggs plc, Rightmove plc And Renishaw plc?

Have these growth stars got more to give? This Fool takes a look at Greggs plc (LON: GRG), Rightmove plc (LON: RMV) and Renishaw plc (LON: RSW)

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With results season in full swing, there are plenty of stocks moving the indexes – some up, some down.

Whilst it can be tempting to look for the day’s, week’s or month’s biggest losers, hoping for either a dead-cat bounce or a quick recovery, I have found that it can equally pay to look for stocks that are winning in their particular sector. True, you probably won’t be the first investor to alight upon these winning shares — indeed, some may argue that the smart money has already been made and these types of stocks look expensive. That can be true but, moving forward, brokers tend to increase their earnings and price targets, which — aside from causing a bounce in the daily share price — can also serve to make the stocks looks less expensive on a forward earnings basis.

To demonstrate my point, here are three stocks that have been on my radar for a while. All three announced earnings this week, sending their share price higher – let’s take a look at what the future holds for them…

Healthy Returns To Go

Rewind back to March 2012 and the infamous pasty tax that wiped £20 million off the market cap of Greggs (LSE: GRG) when announced by George Osborne. Along with a profit warning 13 months later, the shares traded at under 400 pence for a time.

The board brought in the current chief executive, Roger Whiteside, who set the company on a path, refurbishing shores and shifting from a bakers to more of a food-on-the-go outfit.

What a path that was. Investors who backed management have seen their investment more than triple and received a modestly growing dividend whilst they waited for things to turn around.

But do the shares currently look like a good investment? Well, they currently exchange hands at 25 times forecast earnings and are expected to yield just over 2%, so they don’t scream “cheap”. However, when management released the interim results, the market was advised that full-year earnings would be slightly higher than they had expected. Accordingly, I expect to see earnings expectations rise, potentially making the shares look less expensive going forward.

Found Our ‘Happy’?

Next up is Rightmove (LSE: RMV). This little growth star has grown earnings at a CAGR (compound annual growth rate) of over 21% from 2009 to 2014, extend that out to the end of 2016. Based on City analysts forecasts, that rate rises to over 26%, meaning that the £30 million profit from 2009 is expected to more than quadruple to £121 million by 2016.

But with the shares trading at all-time highs and exchanging hands at nearly 30 times earnings, more than double the median forecast earnings of all UK stocks with estimates, surely the only way is down from here – right?

Well, maybe, maybe not. You see, here we have another company where City analysts are raising their earnings forecasts. Indeed, earlier this year, investors were worried about perceived competition in the market from the likes of Zoopla and cut their earnings estimates accordingly. However, following two reassuring sets of results, analysts have become more positive, raising EPS estimates from 105 pence per share in January 2015 to 112 pence currently. I wouldn’t be surprised to see estimates continue to rise going forward, as broker estimates can often lag reality.

The Master Of Measurement

The final company under review today is Renishaw (LSE: RSW). This UK-based metrology company — engaged in the design, manufacture and sale of advanced precision metrology and inspection equipment, together with products for the healthcare sector — is probably one of the less well known FTSE 250 growth stars.

But grow it has: from profits of £21.8 million in 2010 to profits of £87.7 million forecast for 2017, the CAGR is a fantastic 41%. The shares hardly trade in the bargain bucket, trading at a forecast 18 times earnings; however, I think that we will see analysts start to upgrade their forecasts going forward.

You see, management forecast profit before tax in the range of £85m – £105m… that’s not bad visibility less than four weeks into the new financial year. Save for a total market meltdown in the next 12 months, I think that there is scope for these forecasts to be upgraded as the year goes on, taking analysts and the market by surprise.

Foolish Bottom Line…

Here we have three growth stars that could continue to beat the market. As the chart below shows, some have left the market for dust.

Whilst there is no guarantee, they do display many of the attributes to continue to grow and beat the market going forward.

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.

Dave Sullivan has no position in any shares mentioned. The Motley Fool UK has recommended Renishaw and Rightmove. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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