2 FTSE 250 growth stocks that could make you a fortune

Royston Wild looks at two FTSE 250 (INDEXFTSE: MCX) stocks with exquisite earnings potential.

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Diploma (LSE: DPLM) broke out of its long-running downtrend in mid-week business as its latest financial release was well received by the investment community. The technical  products provider was last 7% higher from Tuesday’s close and dealing at levels not seen since late June, above £11.10 per share.

In a bubbly trading update the London-headquarted firm advised that it “has continued to trade well in the second half of the year and remains on track to report results for the full year in line with expectations.”

It expects revenues to grow by around 17% in the 12 months to September 2017, with the tailwinds created by sterling’s decline expected to contribute around 9% to this total. Meanwhile the impact of acquisitions are likely to contribute 2% to the total, Diploma said.

On an organic basis turnover is predicted to have advanced 6%, it added.

Broad-based strength

At its Life Sciences division, Diploma said that revenues are expected to rise by 3%, with sales “helped by stronger second half capital equipment sales in the Healthcare businesses.” Revenues here are also expected to grow thanks to a “good contribution” from clinical diagnostics specialist Abacus which was acquired in April.

Meanwhile, Diploma said that it expects sales at its Seals unit to rise by 4% in the year to September. It commented that “trading activity in North America [has] benefitted from solid revenues in the Aftermarket and a resumption of growth in the Industrial OEM businesses.” In more good news, the company said that revenues at International Seals have returned to growth during the second half of the year.

To round off the good news, Diploma said that sales at its Controls arm are expected to rise 13% for the full year, the division “benefitting from new project activity and a strong focus on developing new sales opportunities.”

It is no surprise that investors have been piling back into Diploma on Wednesday given this broad-based strength. And it is also not difficult to see earnings take off in the years ahead as the company uses its formidable cash flows to fund acquisitions.

The City certainly thinks the FTSE 250 star should continue delivering meaty earnings growth, and has forecast bottom line expansion of 15% and 6% in fiscal 2017 and 2018 respectively.

I reckon the firm is a wise buy right now even in spite of its high paper valuation — the company sports a forward P/E ratio of 22.6 times.

Brace for take-off

I also believe BBA Aviation (LSE: BBA) is worthy of serious attention right now given its robust position in a growing market. The flight support and aftermarket play’s broad base and market-leading capabilities are helping it outperform the wider market, and organic revenues at its Signature support arm rose 3.2% during January-June. And I am confident that the company can continue delivering healthy sales growth as the US economy steadily improves.

The number crunchers expect BBA to report an 18% earnings advance in 2017, and to follow this with another double-digit rise — this time by 10% — in the following year.

And these projections make the flying ace excellent value for money. A prospective P/E rating of 17 times may not be much to shout about, although a PEG ratio bang on the value watermark of 1 certainly is.

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended BBA Aviation. 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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