2 high-flying growth stocks I’d buy more of today

Roland Head explains why he sees further upside potential at these two firms.

| 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.

Today I’m going to look at two growth stocks in my personal portfolio that have delivered gains of at least 90% over the last year. Shareholders may be tempted to take profits, but I’m going to explain why I think further gains are possible at both firms.

This is the future

Internet marketing group Taptica International (LSE: TAP) said this morning that the company’s full-year results are expected to be “higher than market expectations” thanks to continued expansion and an increase in ad spending by existing customers.

Shares of AIM-listed Taptica have risen by 113% so far in 2017 and by a staggering 428% over the last year. This Israel-based company was founded in 2007 and floated in 2014. It specialises in providing targeting mobile advertising services for corporate customers such as Sony and Starbucks.

Management said today that corporate clients and advertising agencies are increasing the amount they spend on mobile advertising with the firm. Expansion into the Asia-Pacific region is also progressing well. The company says that revenue for the six months to 30 June should be 25% above the same period last year, while earnings before interest, tax, depreciation and amortisation (EBITDA) should be 40% higher.

Despite this meteoric growth, the firm’s shares still look relatively affordable. One reason for this is probably that some investors are wary about investing in overseas AIM stocks. These have gained a bad reputation over the last couple of years, but Taptica’s accounts look sound to me and I’m confident the group’s cash generation and profits are real.

Today’s update is likely to trigger a round of broker upgrades for the stock, which trades on a 2017 forecast P/E of about 13. Although the dividend yield is low, at 1.5%, the firm ended last year with net cash of $21.5m. It could offer bigger payouts if it wasn’t reserving cash for acquisitions. I plan to continue holding.

Shareholders could get a cash bonus

Redrow (LSE: RDW) is my pick of the housebuilders and is a stock I own myself. Although it’s not the largest in the sector, I feel it offers more upside from current levels than some rivals.

The group is controlled by chairman and founder Steve Morgan, who has a 29% stake in the business. Mr Morgan has overseen a strong recovery since 2009, when he returned after a period away from the firm. However, the investment needed in the business since then has meant that it has lagged key rivals in terms of free cash flow and dividend growth.

This has resulted in the company trading at a lower valuation than some peers. The stock currently has a forecast P/E of eight and a prospective dividend yield of just 2.8%, well below the average among big-cap housebuilders.

However, I believe the outlook is starting to change. I estimate that free cash flow rose by 135% last year. This helped the firm to cut net debt from £183m to £56m in 2016.

If the company can continue to generate surplus cash at this rate, I believe shareholders could be in line for a big dividend hike, potentially driving the shares higher.

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 owns shares of Redrow and Taptica International. The Motley Fool UK owns shares of and has recommended Starbucks. The Motley Fool UK has recommended Redrow. 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

Young black man looking at phone while on the London Overground
Investing Articles

This 10.6% yielder beats every dividend share on the FTSE 100. Can it last?

Harvey Jones couldn't resist the double-digit yield on offer from this FTSE 100 stock. Now he'd like to get some…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

With the FTSE 100 flying, I love the look of this company

The FTSE 100 index has been in rally mode over the last few months, but I think one of it's…

Read more »

Investing Articles

17% of my Stocks and Shares ISA is invested in these 2 UK shares

Stephen Wright looks to focus on investments in companies that have strong competitive advantages. And two UK shares stand out…

Read more »

Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA into Lloyds shares

Harvey Jones bought Lloyds shares last year and is kicking himself for failing to buy even more of them. The…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Apple is still my favourite company in the S&P 500, here’s why

Apple recently unveiled a lot of new software at a developer conference. Here's why the tech giant is still my…

Read more »

Investing Articles

5 great value UK companies I’d buy in a Stocks and Shares ISA and aim to hold for decades 

Harvey Jones is getting to work on his Stocks and Shares ISA. He thinks these five firms have solid income…

Read more »

Value Shares

Are GSK shares a bargain after falling 11%?

GSK shares have taken a hit in recent weeks due to Zantac uncertainty. Here, Edward Sheldon looks at whether they’re…

Read more »

Investing Articles

Nearing £5, could the Rolls-Royce share price hit £6?

The Rolls-Royce share price has soared in the past year. Our writer thinks there could be a strong runway ahead…

Read more »