2 easy millionaire-maker growth stocks?

The P/E ratios are high for these two shares but their performances suggest that they’re worth the price premium.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Marlowe (LSE: MRL) buys up and develops “companies that provide critical asset maintenance services“, and on Thursday the company announced its latest acquisition. It’s bought dB Audio and Electronic Services Limited, which provides “a portfolio of fire protection services” for an enterprise value of £0.2m.

After several years of essentially break-even performances, Marlowe posted an adjusted pre-tax profit of £3.3m for the year to March 2017, from revenue of £46.8m (with statutory pre-tax profit coming in at £700,000), and earnings per share of 1.1p.

In a first-half trading update on 20 October, the firm told us that the integration of its four acquisitions during the period was going well and already producing synergies, as anticipated. An “increased awareness of the requirement for the high standard of maintenance that is needed to comply with health & safety laws and regulations” was apparently bringing benefits.

Growth through acquisition

Net cash stood at around £3.1m, strengthened by a placing last December that raised £10m, and in April, the company revealed an increase in its debt facility with Lloyds Banking Group to £17.5m.

Interim results are due on 11 December, and I’m expecting them to support the impressive forecasts being put out by the City’s analysts right now. They’re expecting the start of serious earnings per share (EPS) at 12.6p by March 2018, with 2019’s predictions for a 22% increase taking that up to 15.4p.

The share price has responded, gaining 250% over the past two years, but has it gone too far? Well, it’s been flat for 2017, and we’re looking at a forward P/E of 29, dropping to 23.5 next year. That anticipates solid future growth, and I can see it happening.

Software growth

I spent many years in software development, and I was always aware of Micro Focus International (LSE: MCRO) as a reliable provider of high-quality business software.

When the company floated on the stock market in 2005, I expected it to do well, and it has. Since then, the price has multiplied more than 13-fold to today’s 2,547p, and the company has been handing out growing dividends every year. Do I wish I’d bought some back then? You bet I do.

Forecasts would put the shares on a P/E multiple for the year to October 2018 of a shade under 16. That’s a little ahead of the long-term FSTE 100 average of around 14. And Micro Focus’s dividend yields are pretty close to the FTSE average, too — they’ve ranged between 2.6% and 4.4% over the past five years, with forecasts suggesting around 3%.

No plodding here

I’d say that’s a ‘reliable plodder’ valuation — but Micro Focus is no plodder. EPS is predicted to grow by 21% this year and 11% next, which would double EPS between 2013 and 2018 — and that makes those P/E ratios look like bargain territory to me.

Some were uncertain about the firm’s acquisition of the software business segment of Hewlett Packard Enterprise (HPE), as the target’s revenues had been declining. But cost-cutting and the paring back of less profitable product lines has already been paying off, with the revenue decline improving to a modest adjusted fall of 2% by Q3, and operating margins improving to 24.9%.

Micro Focus’s proven ability to keep costs down and margins up should, I think, enable it to turn HPE round into growing revenues in the future, and I see it as a sound long-term purchase.

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.

Alan Oscroft owns shares in Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group and Micro Focus. 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.

More on Investing Articles

Investing Articles

The National Grid share price nosedived 21% in 2 days! Is it time to take advantage?

The National Grid share price tumbled after the company surprised shareholders by revealing plans to raise more money via a…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Dividend Shares

How I’d try to ironclad my second income before interest rates fall

Jon Smith explains a couple of tactics he's looking to implement in his dividend portfolio to try and protect his…

Read more »

Investing Articles

The FTSE 100 still looks cheap to me. But don’t just take my word for it!

The FTSE 100 (INDEXFTSE:UKX) has increased 7.5% since the start of 2024. But I think there’s evidence to suggest that…

Read more »

Investing Articles

What should the Vodafone share price be? Here are 3 possible answers

Our writer uses a number of popular financial measures to come up with an estimate of a fair value for…

Read more »

Investing Articles

Here’s how much I’d have if I’d bought 1,000 shares in this FTSE 100 defence stock 5 years ago

I could have made a pretty penny investing in this leading FTSE 100 defence stock. Now I’m looking at a…

Read more »

Investing Articles

1 potential millionaire-maker UK stock I’d like to buy for the long haul

For long-term investors, here’s 1 UK stock to consider buying right now with the potential to help power a growth…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

These cheap UK shares look way too good to ignore right now

With the UK stock market reaching new highs recently, this Fool plans to grab these two remaining cheap shares before…

Read more »

Young Woman Drives Car With Dog in Back Seat
Investing Articles

This unloved UK stock could rise 120%, according to a City broker

Some City analysts reckon a once-popular UK stock can recover from its massive recent decline and go on to more…

Read more »