2 monster growth stocks in the making

Royston Wild looks at two stocks with terrific earnings potential.

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PureCircle (LSE: PURE) found itself backpeddling in Tuesday trading following a less-than-enthusiastic reception to full-year trading numbers.

The stock was last 4% lower on the day, retreating further from September’s 28-month tops, above 480p per share. However, this is reflective of mere profit taking rather than signs for concern as PureCircle’s market value has almost doubled since the start of the 2017.

The stevia sweetener producer advised that revenues during the 12 months to June 2017 fell 14% year-on-year to £118.9m, and this pushed operating profit 47% lower to £17.6m.

PureCircle was whacked by the US Customs & Border Protection, placing the firm on its Withhold Release Order (WRO) list. That saw its products banned for import last year while allegations that they were produced by forced labour in China were being investigated.

The ban was lifted in January, but the firm advised that “the impact of this WRO on our business was significant and continues to be felt today,”  and that it will take time to build up US momentum again in a market generated a third of its total sales in 2016.

On the right track again

While the first half result was disappointing (if not surprising), there was still  plenty to take away from PureCircle’s release. Sales outside the US increased by a healthy 8% during fiscal 2017, illustrating the strength of global demand for stevia products.

And the Malaysian company continued to invest heavily last year to underpin future sales growth. It invested $42m it its stevia refinery in Malaysia, and the huge sums it has dedicated to product R&D saw 124 new products hit the shelves last year.

With sales of the sweetener booming across the globe, and the troubles it experienced in the States now behind it, I believe PureCircle can look forward to exceptional earnings growth in the years ahead. And City analysts have predicted a 130% bottom-line rise in the current fiscal year alone.

A forward P/E ratio of 62.9 times may look unappealing on paper, although a sub-1 PEG reading of 0.5 suggests the business is actually attractively priced relative to its growth prospects. I reckon PureCircle is a very attractive investment destination.

Upping the pace

I’m also convinced that demand for The Gym Group’s (LSE: GYM) cheap fitness passes should continue to boom as growing restraints on Britons’ spending power worsens, and the keep fit craze drives ever-more people onto the treadmill.

The Guildford-based business saw revenues shoot 19% higher during January-June to £42.8m, and the low-cost operator continues to aggressively expand to bolster sales growth. Last week, the group snapped up 18 gyms from Lifestyle Fitness for £20.5m, and plans to open 20 new sites under its organic rollout programme this year alone.

Against this backcloth, City brokers predict earnings expansion of 34% and 19% for 2017 and 2018, respectively, resulting in a prospective P/E rating of 28.4 times and a corresponding PEG multiple of 0.8. I reckon The Gym  Group is also worthy of serious consideration at the present time.

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Royston Wild has no position in any of the 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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