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Two stunning growth stocks that could double again in 2018

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Finding quality businesses with the potential to double in one year isn’t easy. But it can be done. Today I’m looking at two stocks which have risen by an average of 128% over the last 12 months.

These aren’t lossmaking ‘jam tomorrow’ stocks. They’re profitable and well-financed businesses with good long-term prospects.

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It’s no game

Competitive ‘esports’ represent the glamourous side of the video game industry. But behind the scenes, a lot of technical work is required to allow games producers to sell and support popular games around the world.

AIM-listed Keyword Studios (LSE: KWS) is an increasingly big player in this growing niche, providing services such as localisation, voiceover and functional testing.

The company’s shares rose by 8% this morning after it said that revenue and adjusted pre-tax profit for the year ending 31 December should be “comfortably ahead” of market forecasts.

Today’s gain means that Keyword’s share price has risen by 173% over the last year, lifting its market cap to £987m. It’s now the 14th-largest stock on the AIM market.

This could go higher

Consensus forecasts before today suggested that the group’s adjusted earnings would rise by 40% to €0.29 per share this year. Today’s announcement suggests to me that a figure of €0.32-€0.34 is more likely, giving one-year profit growth of perhaps 60%.

Much of the group’s breakneck growth has been achieved through acquisitions, but cash generation and profit margins have remained strong and the group has very little debt. Keyword also issued £75m of new shares in October, providing dry powder for further deals.

The stock’s 2018 forecast P/E of 40 may seem expensive, but I believe a more meaningful measure is the PEG (P/E growth) ratio, which at 1.26 seems quite reasonable to me. I think further gains are possible.

This is how you do it

Like Keyword Studios, Victoria (LSE: VCP) has a market cap just short of £1bn and is listed on the AIM market. The similarities don’t end there. Both companies have expanded quickly and successfully through a well-executed series of acquisitions.

Victoria’s focus on floor coverings such as carpets and tiles may be a million miles away from video games. But the result for shareholders is not. The shares have risen by 130% since the start of 2017 and by well over 1,000% since Executive Chairman Geoff Wilding took charge in 2012.

The group’s momentum appears to remain strong. In an update last week, management reported “very good levels of trading” in the December quarter.

Victoria’s adjusted earnings are expected to rise by 17% to 29.8p per share this year. This is below the firm’s average earnings growth of 36% per year since 2012, but analysts expect this relatively modest result to be no more than a brief pause.

Broker consensus forecasts indicate that earnings are expected to climb by 56% to 46.5p per share in 2018/19, as the full benefit of recent acquisitions reaches Victoria’s bottom line.

These forecasts place the stock on a forecast P/E of 18 for the year ahead. I believe this could still be a reasonable price for such a successful company. If I owned the shares, I’d definitely hold on for more.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Keywords Studios. 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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