2 growth stocks that could make you rich

Royston Wild looks at two stocks with brilliant long-term profits potential.

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K3 Capital (LSE: K3C) danced higher in Monday’s session following a favourable reception to full-year numbers. It was last 4% higher on the day, and I believe the firm is likely to continue its heady ascent.

The business sales and brokerage specialist — which was only admitted to the London Stock Exchange’s AIM market in April — advised that group revenues charged 26% higher in the 12 months to May 2017, to £10.8m. As a result, pre-tax profit rose 18% to £3.6m.

And the company’s bullish view of the market suggests that it can look forward to further hefty sales growth.

Chief executive John Rigby said: “The small-cap M&A market continues to enjoy robust market conditions, with deal volumes above the 10-year average. Despite Brexit and wider economic and political uncertainties, the market has been boosted by a significant upturn in inward investment, as foreign bidders look to take advantage of favourable exchange rates.

This coupled with high levels of private equity funding, creating strong activity from both UK and overseas houses, are just two factors driving current transaction volumes,” he added.

And Rigby noted that the improving momentum witnessed through the course of last year has continued into the current period, the company talking of a “strong start to the new financial year, with trading comfortably in line with management expectations.” K3 Capital has already chalked up two significant transactions so far this year, each of which has generated transaction fees in excess of £1m.

Be patient

Those hoping for immediate, stratospheric long-term earnings growth may be disappointed as the Bolton-based company is expected by analysts to endure a 63% bottom-line fall in fiscal 2018.

Having said that, I believe the ever-improving backdrop, allied with K3 Capital’s ambitious growth strategy (it is investing huge sums in its marketing and sales capabilities to secure higher value and more profitable mandates) should deliver excellent bottom-line growth in the longer term. Indeed, the number crunchers are predicting this to start with profits growth of 17% next year.

And I reckon a forward P/E ratio of 13.6 times is an attractive level upon which to latch onto the M&A mammoth.

Heading higher

Those seeking exceptional long-term earnings growth also need to take a look at Flybe Group (LSE: FLYB), in my opinion.

The budget flyer has not proved to be a resilient profits creator in years gone by, but the City is expecting the Exeter business to break this trend by posting earnings of 1.6p per share in the year to March 2018, and to follow this up with a further upward blast — to 7.2p — in the following period.

And it is difficult to disagree with analysts’ bullish projections, certainly in my opinion. Not only does traveller demand for cheap airline tickets continue to take off (Flybe itself saw passenger numbers soar 7.1% between April and June, to 2.4m), but the company’s plans to dial back its previously-lofty expansion programmes should create a more efficient, earnings-generating machine.

Whilst looking toppy on paper, I reckon a forward P/E ratio of 23.3 times is fair value given Flybe’s fast-improving earnings outlook.

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.

Neither Royston Wild nor The Motley Fool UK have any 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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