Are these 2 of the best growth stocks to buy now?

With sales expanding rapidly, you could be missing out if you don’t buy these growth stocks.

| 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.

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.

The market’s best growth stocks are the ones that you can trust to produce returns year after year, with no effort on your part. These companies are challenging to find, but they are out there. You just need to know where to look.

One such company is innovative ingredient solutions producer Treatt (LSE: TET).

Creating value 

Over the past five years, Treatt’s management has proven that it is one of the ablest set of leaders around. Over this period, pre-tax profit has risen by nearly 200% as sales have grown by 50%. Thanks to this growth, shares in the company have powered higher by almost 400% since the beginning of the second quarter of 2013.

And it looks as if this growth is set to continue. Today the company reported that following the performance for fiscal 2017 (when profit before tax jumped 46%), for the six months ended 31 March 2018, revenue increased 11% year-on-year. The core business categories of citrus, tea and sugar-reduction have “continued to drive top-line growth” while new business wins have bolstered the trading performance.

Management expects this trading momentum “to continue in the second half of the current financial year and beyond,” leading me to conclude that the market is undervaluing Treatt’s potential.

City analysts are expecting earnings per share to decline by 3.6% for fiscal 2018, which seems to be a conservative forecast considering today’s reported revenue growth, as well as the expected benefit from US tax cuts. With this being the case, I believe Treatt is one of the best growth stocks to buy now, ahead of a possible re-rating driven by better-than-expected trading performance.

A re-rating is already underway with another top growth stock, cybersecurity solutions provider Sophos (LSE: SOPH). Shares in Sophos jumped 20% in early deals this morning after the company said it anticipates reported billings growth for the year ended March 31 to come in towards the top end of guidance of 20% to 22% thanks to fourth quarter reported billings growth of approximately 23%. 

Huge opportunity 

Over the past four months, the stock has fallen out of favour with investors due to concerns about its valuation and growth potential. For example, to justify the current valuation of 85.1 times forward earnings, profits need to be expanding at a rate of 86% or more per annum. For 2018, analysts are expecting the firm to report its maiden profit of $0.07 per share, with earnings rising 61.4% to $0.11 for 2019.

This rate of growth alone does not justify the valuation, but in my view, the company deserves a high valuation due to the opportunity ahead of it. 

The value of the cyber security market is currently growing at a rate of around 11% per annum and will be worth an estimated $165.2bn by 2023. If Sophos can grab just a 1% share of this market, its sales could triple from $529m reported for 2017 to $1.65bn by 2023. If earnings can grow at the same rate, I’m convinced that shares in Sophos deserve their current premium valuation.

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

Investing Articles

Despite rising 152% in a year, is Rolls-Royce’s share price still a bargain?

While Rolls-Royce’s share price has shot up recently, it still looks very undervalued against its peers, and the business looks…

Read more »

Investing Articles

Could Nvidia stock be a bargain in plain sight?

Nvidia stock has surged 252% over the past 12 months, but that doesn't mean it's expensive. In fact, it may…

Read more »

Investing Articles

Here’s why I think the Vodafone share price should be 110% higher

Reflecting on speculation, our writer believes there’s a case to be made for the Vodafone share price being more than…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Is this dividend star also the best bargain in the FTSE 100?

This FTSE 100 stock pays a whopping 8%+ yield, looks very undervalued against its peers, and is set for stellar…

Read more »

Investing Articles

2 FTSE 100 stocks. One sublime, the other ridiculous

Our writer doesn’t understand the appeal of Ocado. But looking at the grocer’s latest results makes him see the attraction…

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 Articles

Down 18% in a year, what’s next for the Greatland Gold (GGP) share price?

The Greatland Gold share price has disappointed over the past 12 months. Our writer asks whether the company’s latest update…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

With 30% annual returns for a decade, I’m buying this for my Stocks & Shares ISA

Oliver Rodzianko has been looking for a new investment for his Stocks and Shares ISA. Here's one he's decided is…

Read more »

Investing Articles

These were the FTSE 100’s dogs and stars in February

The FTSE 100 limped along last month, but some Footsie shares soared while others slumped. Here are February's winners and…

Read more »