The last three months have been highly profitable for investors in support services company Interserve (LSE: IRV). Its share price has risen 42% after it released a positive update regarding its operational and financial progress. Investors now seem to be more bullish about its future prospects.
Clearly, the company remains highly volatile, and its outlook is uncertain. But alongside this ‘hidden’ growth stock, it could deliver a 100% return over the medium term.
An improving outlook
While trading conditions have been tough for Interserve, it seems to be implementing a number of self-help measures which are expected to lead to rising profitability. For example, it’s in the process of cutting costs as it seeks to become more efficient. This could make it a more competitive and flexible entity able to generate rising profitability.
In fact in the current year, the stock is expected to return to growth with its bottom line forecast to rise by 23%, and by a further 33% next year. This is obviously strong and shows that while its shares are down 67% in the last year, even after its recent gain there could be upside potential on offer. That’s especially the case since it trades on a price-to-earnings growth (PEG) ratio of only 0.1.
Certainly, Interserve’s financial position is highly uncertain. There could be further problems ahead in this area, which means it remains a high-risk stock. But with a wide margin of safety and clear turnaround potential in terms of its earnings growth forecasts, the stock could perform well in future months and years.
More growth prospects
Also offering significant upside potential is food producer Cranswick (LSE: CWK). The company released a positive third quarter trading statement on Thursday which showed that it’s making good progress with its strategy. Both total and like-for-like revenues increased, with each of the company’s categories delivering positive volume growth. In fact, its trading in the period was slightly ahead of expectations, which caused its share price to move 3% higher following the update.
This new valuation takes Cranswick’s share price rise to over 200% in the last five years, which is an exceptional result. After all, its defensive status puts it in a grouping where many stocks have been proving relatively unpopular among investors in recent years. However, with the company being able to generate double digit growth in each of the last three financial years, its rising share price may have been warranted.
Looking ahead, the company is due to report further growth in its earnings. Its bottom line is expected to rise by 15% in the current financial year. With it trading on a PEG ratio of 1.5, there could be further capital growth ahead. Therefore, with its resilient and stable business model providing a relatively low risk outlook, its risk/reward ratio seems attractive.
