2 growth stocks that could deliver a 50% gain in 2017

Roland Head reviews the latest figures from two hotly-debated growth stocks.

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In today’s article I’m going to look at two of today’s biggest mid-cap movers. Both have delivered record results this morning. But question marks surround each firm’s future prospects.

This stock is a cash machine

Shares of online trading group Plus500 (LSE: PLUS) were hit last year by plans for tighter regulation. But this controversial stock rose by 8% to 460p this morning, after Plus500 said that earnings rose by 21% to $1.02 in 2016, and announced a $31.4m special dividend.

Net profit rose by 21% to $117.2m last year, while cash generated from operations rose by 20% to $153.3m. Plus500 ended the year with net cash of $136.5m.

Based on today’s results, Plus500’s shares look exceptionally cheap, with a trailing P/E of 5.6 and a total dividend yield — including special dividends — of 15.6%.

Too good to last?

If you’re considering investing in this stock, then I believe you need to ask whether Plus500’s profits are sustainable. Many analysts expect the group to be hit hard by proposed FCA restrictions on the amount of leverage available to retail investors.

In today’s results, the firm said its flexible business model should “partially mitigate any impact” from regulatory changes. In my view, that’s a clear statement that management expects profits to fall under the proposed new regulations.

Plus500 shares could easily be worth 50% more, based on the firm’s 2016 performance. But the stock has only risen by 8% today. This tells me that the market expects lower profits in the future. I share this view, and would class Plus500 only as a high-risk speculative buy.

A very attractive picture

Pre-tax profits at television set-top box manufacturer Amino Technologies (LSE: AMO) rose by 96% to £10.2m in 2016, according to today’s results. This dramatic increase was largely the result of the firm’s $73m acquisition of rival Entone in 2015.

It’s clear to me that Amino’s current business is performing strongly. Cash generation from operations rose by 129% to £15.8m last year, and the group ended 2016 with net cash of £6.2m.

Shareholders have been rewarded with a 10% dividend hike to 6.05p per share, giving a trailing yield of 3.2%.

What comes next?

My concern is that future growth may disappoint. Amino shares have risen by 69% over the last year and now trade on a 2017 forecast P/E of 15. But the group’s organic sales only rose by 7% last year. Analysts’ forecasts suggest that sales are only expected to rise by about 4% in 2017.

In my view, there’s also a risk that the group’s set-top box technology will gradually become obsolete, perhaps because more functionality will be built into televisions or hosted online in cloud services.

Naturally the firm’s management doesn’t share this view. In today’s results, Chairman Keith Todd advised investors that “Amino enters 2017 with a strong order book” and expects “profitable growth in 2017”.

Amino looks like a good company to me, but I’d argue that the share price is now up with events. I’d hold.

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.

Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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