2 fast-rising growth stocks with lots of upside

Looking to invest for growth? These two shares have great momentum.

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If you’re looking for the best growth opportunities, I think it’s important to look beyond popular blue-chip names to find growth stocks that are available at attractive valuations. There are plenty of hidden gems in the small- and mid-cap segments, offering investors the opportunity to buy into companies with solid fundamentals and lots of upside potential.

Resilient

First up is River and Mercantile Group (LSE: RIV), an advisory and asset management company which is doing well amid challenging market conditions.

Steady fund inflows reflect the asset manager’s resilient business model and the robustness of the appeal of its investment solutions. Net inflows in the three months to 30 June were £0.4bn, with net sales of £0.2bn and positive rebalancing flows in Derivative Solutions of £0.2bn. This marked its 13th consecutive quarter of positive fund flows since its IPO back in 2014.

For the 12 months to 30 June, fee-earning assets under management increased by 22% to £31bn, while performance fees are estimated to have risen to £12.5m, up from £1.5m last year.

Looking ahead, CEO Mike Faulkner said: “We remain well positioned to continue this growth and will continue to invest in our operating platform, international capabilities and new product launches.”

The question for investors is whether earnings and dividends will rise fast enough to meet the market’s demanding expectations — shares in River and Mercantile Group have already gained 63% year-to-date.

Personally, I reckon there could still be more upside to come as the company’s steady growth in assets under management reflects its sector-leading performance. Valuations aren’t necessarily cheap, with the shares trading at 19.3 times expected earnings in 2018, but quality companies with good growth prospects always come at a price.

The dividend outlook is attractive too, with shares in River and Mercantile Group forecast to yield 4.2% this year at current prices — and that’s up from its trailing dividend yield of 2.5%.

Strong growth

Another stock worth a closer look is CVS Group (LSE: CVSG). In a trading update on Monday, the veterinary services provider said it saw like-for-like growth of 6.3% for the year to 30 June, with full-year revenue and earnings likely to be in line with expectations.

CVS is seeing strong growth as it continues to invest heavily in its existing services and in organic growth, amid growing demand for veterinary services in the UK and the Netherlands. Acquisition-led expansion continues apace too, with a total of 62 surgeries acquired over the past year.

Looking ahead, CVS continues to see a significant number of acquisition opportunities and expects further like-for-like growth in the coming year. In addition to generating top-line growth, this could lead to improved scale, which could benefit future margins.

Moreover, City analysts seem sanguine on its growth prospects. They expect underlying earnings to climb 27% this year, with further growth of 9% in 2018, which gives it a forward P/E of 28.1.

Shares in CVS are up 17% year-to-date.

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.

Jack Tang 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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