The best growth stocks for beginners are those companies that you can buy and forget, like recruiter Robert Walters (LSE: RWA).
In my opinion, this is an excellent buy for beginner investors because it is a relatively simple business. The group is an international recruitment firm that specialises in finding “the highest calibre professionals” to fill job positions required by its clients. And while recruitment is a cyclical business, in the boom times it is very profitable — as the company’s most recent figures show.
Last year, Robert Walters reported earnings per share growth of 49.5%, following an increase of 35% in 2016. Off the back of this growth, the company hiked its dividend payout by 42%, and if City forecasts are to be believed, it is on track to report another outstanding performance for 2018. Analysts have pencilled in earnings per share growth of 15% for 2018, with the dividend set to grow by a similar amount.
Based on these City forecasts, shares in the company trade at a forward P/E of 15.3 and support a dividend yield of 2%.
However, I believe that these growth targets are a conservative estimate. A trading update from the company, published this morning, showed 17% year-on-year growth in net fee income for the three months to the end of March. All of the regions Robert Walters operates in reported strong growth, particularly in Europe where net fee income jumped 32% on a constant currency basis. Even uncertainty about the UK’s economic outlook did not hold back growth. Net fee income for UK hiring expanded 6% in constant currency year-on-year for the first quarter.
As well as Robert Walters’ growth, the other desirable quality this business has is its cash generation. At the end of March, the balance sheet was stuffed with £34m of net cash, up 156% on last year and comprising 6.5% of the firm’s market capitalisation.
Buy and build
Another fast-growing undervalued business I think would be a good pick for beginners’ portfolios is staffing solutions company Staffline (LSE: STAF).
For 2018, City analysts are expecting the company to report earnings per share growth of 50%, a rate of growth that, in my opinion, is not reflected in Staffline’s lowly valuation of 8.3 times forward earnings.
As my Foolish colleague Roland Head pointed out at the end of January, Staffline’s earnings per share have grown by an average of 18% per annum since 2011, as the company has augmented organic growth with acquisitions. These deals have helped to offset weakness at the firm’s PeoplePlus division, which provides staff for mainly public sector clients. Profits here fell 10% last year as the group continued to wind down its Work Programme scheme.
Still, Staffline has plenty of other growth avenues available to it. For example, last month the group acquired blue collar recruitment business Endeavour Group Limited, and in February, two other smaller deals were completed, contributing a total of £88m to Staffline’s top line.
With net gearing of just 17% at the end of 2017, it looks to me as if Staffline can continue with this strategy of consolidation for many years to come, and as long as there is not a severe economic depression in the UK, demand for its services should continue.
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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.