Two high-growth stocks you might regret not buying

You could miss out on thousands of pounds of gains by overlooking these two companies.

| 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.

Growth

Image: Public domain

Over the past decade, RPC (LSE: RPC) has proven itself to be one of the market’s top growth champions. Indeed, if you’d invested in the business 10 years ago with £1,000, today that would be worth £4,431 today, including dividends. 

The plastic packaging maker has been able to achieve such impressive returns for investors as the business is highly profitable and cash generative. Management has been able to successfully reinvest that cash in acquisitions to help improve growth further. The largest of these deals was the recent $640m acquisition of US-based plastic food packaging manufacturer Letica Group, announced in February, which was at the time the sixth deal in five months. 

Growth through acquisitions 

These deals have paid off handsomely. Today, the group announced that during the six months to the end of September, revenue grew 53% year-on-year to £1.9bn, reflecting the contribution from acquisitions, and adjusted EBITDA rose 49%. Free cash flow was up 45% to £172m, from £118m the year before, giving management room to hike the interim payout by 28%. 

After a busy start to the year, RPC is now focused on optimising its cost structure, paying down debt and integrating existing acquisitions. According to management, there will be no further deals this year

Still, RPC does not need to buy to grow. Healthy cash generation gives the group plenty of scope to reinvest in the business and grow organically (management is also using cash to buy back stock). 

City analysts have pencilled in earnings per share growth of 11% for the fiscal year ending 31 March 2018, implying that the shares are trading at an estimated forward P/E of 13.4. I believe that this lowly valuation undervalues RPC and the group’s prospects considering the firm’s historical growth rate. The shares also support a dividend yield of 2.9%, and RPC has a 26-year record of increasing its payout to investors. 

Doubling profits 

Another growth stock I believe you might regret not buying is Quixant (LSE: QXT)

Quixant is an exciting business. The firm manufactures specialist computer systems, which is proving to be highly lucrative. Earnings per share jumped 44% last year, and are on track to grow 36% this year, thanks to rising demand. 

In fact looking at the firm’s first-half results, I believe that the City’s estimate for growth of 36% for 2017 might be conservative. For the six months to 30 June, group revenue rose 38%, while EBITDA and pre-tax profit lept 74% and 98%, respectively. Management has cautioned that these strong growth numbers might not be repeated in the second half as H1 demand was “out of the ordinary” and such buoyant trading is unlikely to be repeated. Still, these numbers put the group in a great position to be able to hit full-year targets. 

The one downside with Quixant is that the shares are quite expensive. At the time of writing the stock is trading at a forward P/E of 29.9, although when you factor in the projected earnings growth for this year, the shares seem cheap, trading at a PEG ratio of 0.8.

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 considered so you should consider taking independent financial advice.

Rupert Hargreaves does not own any share mentioned. The Motley Fool UK has recommended RPC Group. 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

Woman using laptop and working from home
Investing Articles

2 top stocks to buy with dividends yielding more than 3%

When I’m looking for stocks to buy, big dividends can be attractive. On my radar right now is a FTSE…

Read more »

man in shirt using computer and smiling while working in the office
Investing Articles

2 FTSE 250 high-dividend stocks I’d buy for passive income!

Buying shares with above-average dividend yields can have a spectacular effect on long-term passive income. Here are two high-dividend stocks…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Should I buy this dirt-cheap penny stock for growth and returns?

This Fool delves deeper into a penny stock that could be primed to grow and provide lucrative returns in the…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

3 points I’ve learned from Warren Buffett’s whopping $43.8bn loss

Jon Smith shares some of his takeaways after seeing the Q2 reported loss for Warren Buffett's company, Berkshire Hathaway.

Read more »

Happy couple showing relief at news
Investing Articles

The Aviva share price is climbing. Here’s why I’d buy more

After what seems like years of going nowhere, the Aviva share price is finally showing signs of life. I take…

Read more »

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

This is one of the best shares to buy for juicy dividends!

Jabran Khan is hunting for the best shares to buy. This commodities business offers an enticing dividend yield to boost…

Read more »

Young female analyst working at her desk in the office
Investing Articles

Can I trust Rio Tinto’s 10.3% dividend yield?

Rio Tinto offers one of the biggest dividend yields on the FTSE 100 today. But does this make it a…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Lithium prices skyrocket: 2 UK shares I’d buy to capitalise 

Lithium has quickly become the most in-demand metal in 2022. I am looking at two UK shares in the EV…

Read more »