Have £1,000 to invest? Here are 2 monster growth stocks to consider

Harvey Jones reckons you could have a roaring time with these two growth monsters.

| 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.

You cannot top the excitement generated by a monster growth stock, and they don’t get more monster-ish than private healthcare operator NMC Health  (LSE: NMC). This is a 12-bagger over five years, its share price up a rampaging 1,111%.

Your good health

It is now a listed company with a market capitalisation of £8.25bn, so it would be unrealistic to expect another blast of 12-baggery, although it still has lots of momentum, rising 48% in the past 12 months alone. However, it has been trumped by a smaller company, The Gym Group (LSE: GYM), which is up 56% in the last year and today reported a strong first half with “growth across all key metrics”. My Foolish colleague Edward Sheldon predicted its success in January

The Gym Group, which runs 147 low-cost, no-contract gyms across the UK, reported a 36.1% rise in revenues to £58.3m, while group adjusted EBITDA rose 28% to £17.5m. That sounds good, but the stock actually fell around 2% on the news, as margins dipped from 32% to 30.1% year-on-year, reflecting immature estate profile and Lifestyle conversions”.

easyGym does it

Statutory profit before tax fell 14.4% to £5.1m, but that was down to an increase in exceptional costs to £1m, primarily relating to the acquisition of easyGym. Adjusted earnings per share (EPS) rose 7.8% to 4.2p, while the interim dividend went from 0.3p to 0.35p, a 16.7% increase.

So why are investors in a sweat? The £437m company trades at a pricey forward valuation of 34.5 times earnings, and at that hefty valuation, any interruption to the growth story is bound to jangle nerves. However, EPS projections look promising, with City analysts pencilling in 25% growth this year, and 37% in 2019. That should shrink the P/E to a more amenable 24.3 times earnings. The yield is just 0.5% but with cover of six, there is plenty of scope for progression.

The Gym Group continues to acquire new sites and is setting up a personal trainer programme, and although there are limits to growth with consumer pockets stretched at the moment, it looks in good shape.

Strong medicine

NMC Health issued its own half-year report and business update earlier this month to a much warmer welcome, with the stock bouncing 6% once investors had digested the numbers, which included a 20% rise in revenues and 30% increase in adjusted EPS.

Although it is London-listed it has little exposure to the flatlining UK private healthcare market, but instead focuses on the Gulf Cooperation Council (GCC), with an international reach that sees its doctors treat 8.5m patients across the UK, Spain, Italy, Denmark, Slovakia, Egypt, Brazil and Colombia.

Plenty of bite

Four years of double-digit EPS growth are expected to continue this year and next, with impressive projections of 35% in 2018 and 29% in 2019. NMC currently trades at an intimidating 48.7 times earnings but that strong anticipated growth should whittle it down to 27.5 times next year.

The forecast yield may be low at 0.5% but cover of 5.3 offers scope for progression, with management promising to be generous, with a policy of paying out 20%-30% of after-tax profits.

I think both these monsters may continue to roar.

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.

harveyj has no position in any of the shares mentioned. The Motley Fool UK has recommended NMC Health and The Gym Group. 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

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 »

Passive income text with pin graph chart on business table
Investing Articles

This £43bn of passive income is up for grabs today!

As a lover of passive income, I'm always on the lookout for extra cash. The good news is that these…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Is this my once-in-a-decade chance to buy these 2 beaten-down UK shares before they rocket?

The FTSE 100 has had a bumpy ride but these two UK shares have had it bumpier. Could now be…

Read more »