Two growth stocks I’d buy to retire on

These two stocks have tripled investors’ money over the past five years and I expect this to continue.

| 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.

When it comes to growth, few companies have come close to producing the same record of expansion as 4imprint Group (LSE: FOUR). 

Over the past five years, shares in this company have returned more than 400% excluding dividends. Including dividends, the stock has produced a total return of 38% per annum over five years and 27% over 10 years, enough to turn an initial investment of £10,000 into £150,000 in the space of a decade.

Unfortunately, today shares in the marketing business are falling, disrupting this impressive historical performance after it reported worse than expected results for the year ended 30 December.

For the period, profit before tax grew by 19% as revenue expanded by 12% to $628m. Basic underlying earnings per share jumped 18% to $1.03 (or 74p).

While these figures may not have been what the City was expecting, they are still highly impressive and show that 4imprint’s growth is not going to slow down any time soon. Indeed, management has a target to achieve revenue of $1bn for 2022, up around 60% from the figure reported for 2017, which should support earnings per share growth at least the same rate over the next four years. 

How high can you go? 

Using a rough, back of the envelope-type calculation, assuming 4imprint’s net profit margin remains constant at 4.6%, on revenues of $1bn the firm is set to produce a net income of $46m or $1.63 (117p) per share for 2022. Using these highly conservative figures, the shares are currently trading at a 2022 P/E of 15.5, which seems appropriate for this high-growth business.

That being said, the above does not reflect any possible margin expansion from economies of scale as the group grows, and it also does not include a reduction in the company’s tax rate following US Tax Reform. For 2017 4imprint booked an effective tax rate of 28%, a rate that is likely to fall substantially now the US’ federal corporate tax rate has been reduced from 30% to 21%.

Put simply, over the next five years, earnings are on track to grow substantially, and this growth should mean that the company can continue to achieve double-digit annual returns for investors as it has done in the past.

Special skills 

Another growth stock I believe would make an excellent pick for your retirement portfolio is Avon Rubber (LSE: AVON). This company has been around for 127 years, changing with the times to survive. Today Avon makes high-tech gas masks for the defence, industrial and fire service markets, and it produces milking systems for dairy farmers.

These products may be niche, but they require a high level of skill to produce, skill Avon has refined over its long history. The company’s position in these markets also gives it a certain degree of pricing power. Thanks to this power, net profit has risen at an average annual rate of 22% over the past five years, and the firm’s operating margin has increased from 10.9% to 12.1%, funding dividend growth of 28% per annum over the same period. 

At the time of writing, the shares support a dividend yield of 1.4% and trade at a P/E ratio of 16.5, which isn’t exactly cheap, although taking into account Avon’s history of steady growth, as well as its leading position in niche markets, I believe this is a price worth paying for the shares.

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.

Rupert Hargreaves owns no share 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.

More on Investing Articles

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Labour winning the general election would be positive for UK stocks, says JP Morgan

One mega-bank thinks certain UK stocks could benefit following the 4 July election. This writer considers a FTSE share that…

Read more »

Older couple walking in park
Investing Articles

No savings at 40? Here’s how I’d aim to retire comfortably with FTSE 100 stocks

It's never too late to begin investing in FTSE 100 stocks for retirement. Royston Wild reveals three steps to help…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Down 17%, is National Grid’s share price a FTSE 100 bargain?

National Grid's share price has taken a battering following a multi-billion-pound rights issue and dividend rebasement. Is it now too…

Read more »

Environmental technology concept
Investing Articles

Up 150% this year! Can NVIDIA stock keep on soaring?

Christopher Ruane explains why NVIDIA stock has soared over 150% already this year, where it might be going -- and…

Read more »

Investing Articles

Down 44% in a year, here’s why the Aston Martin share price could keep struggling

Not only has the Aston Martin share price collapsed in recent years, our writer sees its current business performance as…

Read more »

Investing Articles

I’m considering these 2 high-growth stocks to buy as a technology investor

Our author thinks Kainos and Softcat could be two of Britain's best tech investments. He thinks the risks in the…

Read more »

Abstract 3d arrows with rocket
Investing Articles

A once-in-a-decade opportunity to buy these FTSE 100 growth shares before they rocket?

Our writer highlights two FTSE 100 growth stocks he thinks could seriously outperform as interest rates are cut and economic…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing For Beginners

Down 14% in a month, is this the FTSE 100’s biggest bargain right now?

Jon Smith mulls over whether he should buy one of the worst-performing FTSE 100 stocks based on it being an…

Read more »