Are you interested in two little-known growth stars that could make investors a fortune? Read on.
SDL (LSE: MCS) is a stock that share pickers have been flocking away from recently (its share price has dropped almost 20% during the past 12 months). This represents a possible bargain-hunting opportunity, in my opinion.
The Berkshire company — which provides language translation software and services — saw its share price come under huge pressure during the latter half of 2016 following not one, but two profit warnings.
A fresh set of financials on Tuesday has failed to put some snap back into SDL’s market value, proving that the market still needs some convincing. The share was down a further 2% on the day after advising that group revenue slipped fractionally in 2017 to £287.7m, a result that pushed adjusted pre-tax profit 19% lower to £22m.
Commenting on the results, chief executive Adolfo Hernandez commented: “2017 was a period of operational heavy-lifting and it is frustrating that, as we drove our transformation, we were not able to perform consistently in financial terms in all areas of the business.”
Repeating earlier warnings, he added: “Our financial results were impacted by weak gross margins in Language Services in the first half and by software deal slippage towards the end of the period,” although Hernandez affirmed that the company was taking plans to remedy these issues.
Risks outweigh rewards?
As I said, I believe current share price weakness may represent a chance for contrarian investors to pick up a great growth stock for next to nothing. SDL is expected to bounce back with a 36% earnings rise in 2018, resulting in a forward P/E ratio of 15.8 times and a corresponding sub-1 PEG reading of 0.4.
And the IT giant is expected to build on this recovery with an additional 12% bottom line improvement next year.
Having said that, while the language translation market offers ample revenue opportunities, SDL still has a long way to go to get its turnaround strategy firing on all cylinders. So while I believe the firm could prove a lucrative bet for long-term investors, the more risk-averse out there may want to give the company a miss today.
On the charge
Those seeking a secret growth share firmly on the rise may want to check out discoverIE Group (LSE: DSCV).
Unlike SDL, investors have been falling over themselves to buy into the Surrey business of late, meaning its share price has ballooned by close to 80% over the past year. Despite this, discoverIE can still be picked up on a forward P/E multiple of just 15 times and a PEG reading of 0.9 for the year to March 2019.
The electronics play is expected by City analysts to keep earnings growing with a 9% improvement in the outgoing period, and a 17% rise is forecast for next year. And I am confident that, with its Design & Manufacturing arm going from strength to strength (organic revenues here leapt 10% during quarter three), that profits should keep on beating an upward path.
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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.