2 super growth stocks with huge potential

Shifting consumer habits are fuelling double-digit sales and earnings growth for these stellar growth shares.

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Despite now being old enough to legally drink, online fast fashion retailer Asos (LSE: ASC) continues to grow at a clip that even many fledgling small-caps would be jealous of. In the six months to February, the company posted a stellar 37% year-on-year rise in revenue and with considerable expansion opportunities at home and abroad, I reckon this growth share has much more to give.

Even in the UK, where the company boosted the number of active customers by 16% year-on-year to 5m in H1, there is still plenty of room to bring in new customers since there are 16.4m young adults in the 15-34 age range that it targets. And expansion potential overseas is relatively boundless with just another 5m customers in Europe and around 2m each in the US and the rest of the world.

Turning itself into a globe-spanning e-commerce juggernaut requires very substantial, and expensive, logistics infrastructure. Thankfully, management is thinking long term and has spent heavily in the past few years in building out its delivery facilities across the world in anticipation of this growth. In H1 alone, capital expenditure nearly doubled from £31.9m to £62.4m.

Of course, in the short term this is a drag on margins. But this honestly doesn’t matter too much as the business is still solidly profitable, has a net cash position and is funding all expansion through cash generated from operations. With a proven business model, a previously proven ability to raise margins when necessary, and huge potential market across the globe Asos still has room to continue growing by double-digits for some time to come.

Risk-averse investors will likely be put off by the stock’s pricey valuation of 84 times forward earnings. But should the share price pull back, I’d definitely be very interested.

A bargain growth option?

A more reasonably priced growth share is digital marketing and public relations specialist Next Fifteen Communications (LSE: NFC). The company specialises in working with tech companies and despite posting earnings increases of 78%, 36% and 40% respectively in the past three years, its shares trade at a relatively cheap 16 times forward earnings.

As more and more marketing campaigns are built with online delivery at their core, rather than simply as an add-on to traditional print or television spots, NFC has proven itself a reliable partner to huge multinationals seeking expertise in online communications that many traditional ad and PR firms simply do not have.

This has led NFC to win contracts with just about every globe-spanning tech firm you can think of, as well as blue chips including GE, IBM and Vodafone. These new contracts are feeding through to the company’s financials and in the year to January it posted a 32% increase in revenue to £171m and a doubling of EBITDA to £29m.

Much of this growth has come through acquisitions, but organic growth was still a very respectable 10% in the period. And with just £11.4m in net debt at period-end, the company’s balance sheet provides plenty of firepower for future acquisitions.

With a reasonable valuation, a core product that is increasingly in demand, and fast growing margins, I believe NFC is worth a closer look for growth-hungry investors.

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 shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK owns shares of General Electric. 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.

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