2 terrific stocks for savvy growth hunters

Royston Wild looks at two stocks with dynamite profits potential.

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Shares in Renewi (LSE: RWI) trekked higher in Thursday trade following a positive reception to first-quarter financials, the waste-to-product specialist trading 4% higher on the day.

The firm — known as Shanks Group prior to February’s merger with the Netherlands’ Van Gansewinkel — said it “has started the new financial year strongly and is trading ahead of our expectations,” with synergies from the tie-up currently “progressing well.”

It said its Commercial Division continued to “perform strongly” during April-June, particularly in the Netherlands, and that volumes and profits continued to grow. It added that stronger recyclate prices and higher market volumes are helping it to expand margins, while the pricing of core contract renewals is also improving thanks to reduced market capacity in a number of waste disposal segments.

Elsewhere, Renewi said that its Hazardous Waste Division had started the year well, while its Monostreams Division had traded in line with expectations.

Upgrades in store?

The City was already upbeat on the Milton Keynes firm’s earnings prospects prior to this week’s release. Forecasts suggested a 10% uptick in the current period. And the bottom line was expected to really tear higher in fiscal 2019 — a 65% rise was anticipated by the number crunchers.

But these figures are likely to receive meaty earnings upgrades should, as I fully expect, Renewi’s top line momentum continues and synergies run ahead of plan.

So while a current forward P/E ratio of 20.7 times may appear a little toppy, this isn’t so bad when one considers the likelihood of positive analyst revisions. And this reading slips to an appetising 12.6 times for next year.

Goes down well

Pub operator JD Wetherspoon (LSE: JDW) is another stock the calculator bashers expect to keep earnings on an upward trajectory.

The Watford-based business continues to defy those predicting a slump in takings as the British economy cools. Just yesterday it announced that like-for-like sales rose 5.3% during the 11 weeks to July 9, accelerating from the 3.3% increase punched in the first six months of the year.

With the tills continuing to ring, City brokers are predicting a 23% increase in the year to July 2017. And like Renewi, I reckon Wetherspoons could be in line for upgraded profits forecasts sooner rather than later, boosting the marginal earnings increase currently predicted for fiscal 2018.

Besides, current forecasts already leave the company dealing on undemanding P/E ratios of 17.1 times and 17 times for 2017 and 2018 respectively.

Wetherspoons has repeated its assertion that it requires like-for-like revenues growth of 3% and 4% next year to keep profits at this year’s expected levels. And I believe such sales expansion is quite possible despite the probability that the UK economy could remain under the cosh. Wetherspoons’ position at the ‘value’ end of the market protecting it from the worst of Britons’ falling spending power.

In addition to this, I reckon the huge amounts Wetherspoons has invested in its pub estate — the company has invested £65m in the current year alone on improving staff rooms, kitchen, gardens and IT systems — should also help it to continue outperforming the broader market.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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