Two stocks that could put UKOG’s returns to shame

Feeling let down by UK Oil & Gas plc (LON: UKOG) because of its volatile performance? Consider these proven growth stars.

| 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.

Despite a violently see-sawing share price and heaps of unrealised potential, UK Oil & Gas continues to be one of the more popular small-caps among domestic retail investors. While UKOG could prove doubters (like myself) wrong and succeed where numerous other small-cap UK oil & gas producers have failed, I’d sooner consider two proven small-cap growth stars.

Florals and bright wellies are big business

First up is clothing retailer Joules (LSE: JOUL) which, after going public in mid-2016, has returned over 55% to shareholders on the back of consistent sales and profit growth. This growth has come through opening new outlets in the UK, selling more of its goods on its website, and expanding wholesale arrangements with department stores in the UK and US.

Last year, this three-pronged growth strategy led to revenue rising 18.4% to £185.9m, with underlying EBITDA up 24.4% to £21.2m. Considering the size of the global clothing market and the high demand at home and overseas for quintessentially British designs, like those Joules sells, I reckon there’s plenty of growth left in the tank for the group.

I also like the fact that the group’s founder, Tom Joules, remains in control of the creative side of the business and owns 32.1% of outstanding shares. In my eyes, this is a great set up as it allows Mr Joules to focus on what he does best, while also ensuring the rest of the business is run by experienced professionals.

Joules’ shares aren’t cheap, at 22 times forward earnings, but for a well-run business that’s experiencing double-digit growth and is already highly profitable, I think this is a very fair price to pay.

A homegrown cyber security play

But if investing in floral print dresses aren’t your style, identity verification expert GB Group (LSE: GBG) maybe more your style. GBG is growing quickly due to the increasing need of businesses to verify who their customers are online in order to combat fraud and maintain compliance with increasing regulatory mandates.

Last year, good organic growth and acquisitions propelled the group’s revenue up from £87.5m to £119.7m. Meanwhile, increasing benefits-of-scale and the high-margin nature of its work, meant operating margins rose to 22%, with adjusted operating profits hitting £26.3m.

Looking ahead, the group’s net cash position, and cash-generative operations, provide plenty of firepower to continue expanding at a double-digit clip through organic expansion and further purchases. And, with demand for identity verification services likely to continue growing at a tremendous clip for years to come, I reckon GB Group has plenty of growth potential over the long term.

The group’s valuation of 41 times forward earnings estimates show I’m not the only one expecting big things from GB Group. But with big sector-wide tailwinds at its back, and an attractive business model that boasts high levels of recurring revenue and steadily improving margins, I think this could be a very fair price to pay.

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.

Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has recommended Joules 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

The Standard Chartered share price leaps on FY dividend and buyback news. Time to buy?

An 8% jump for a UK-listed bank on 2023 results? That's what just happened to the Standard Chartered share price.…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Can Lloyds shares get any cheaper?

Lloyds shares have fallen further following the release of the bank's 2023 results. This Fool senses now is a time…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

£7,000 of money to spare? Here’s how I’d aim to turn that into £1,000 in annual extra income

Christopher Ruane explains how he would aim to generate a four figure income to cushion his future, all with dividend…

Read more »

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

Is this stellar dividend growth stock the only no-brainer buy on the entire FTSE 100?

Picking shares requires careful thought and analysis, but this FTSE 100 growth stock appears to be pressing all the right…

Read more »

Investing Articles

I bought 422 Glencore shares in July and 232 in September. Here’s what they’re worth now

Glencore shares have had a rough ride leaving Harvey Jones out of pocket. Should he cut his losses or average…

Read more »

Man smiling and working on laptop
Investing Articles

Here’s why I’m investing most of my savings in FTSE 100 shares!

I think investing in FTSE 100 shares is one of the best ways that UK investors can make long-term returns.…

Read more »

Newspaper and direction sign with investment options
Investing Articles

When cheap markets meet favourable conditions, sentiment flips very quickly

London’s stock market is cheap — some sectors, even cheaper. Given a change in sentiment, the uprating could be substantial.

Read more »

Investing Articles

Empty Stocks and Shares ISA? I’d snap up these 3 stocks to start with!

Sumayya Mansoor explains how she would start to build wealth from scratch with an empty Stocks and Shares ISA and…

Read more »