Investing in high quality growth stocks can be a powerful way to build retirement wealth.
The two stocks I’m looking at today have both delivered potentially life-changing gains for early investors, and are still growing fast.
My first company has risen in value by more than 2,900% since its flotation in 2002 and by 51% over the last year. In contrast, the FTSE 100 has risen by just 40% since 2002 and has remained flat over the last year.
The company in question is Accesso Technology Group (LSE: ACSO). This firm started out by producing queue management systems for theme parks, so that customers would not have to stand in line for hours on popular rides.
The product range has expanded and now includes systems used at ski resorts and ticketing solutions for sports events and concerts. Accesso is also developing wearable products for use in the healthcare sector, and expanding into the hotel business.
Still growing fast
Growth has been driven by a mix of organic expansion and acquisitions. Today’s half-year results suggest that the company’s momentum remains strong.
Sales rose by 16.7% to $54.4m during the six months to 31 March, while adjusted operating profit rose by 68% to $11m.
Admittedly, this profit figure is flattered by excluding all acquisition-related expenses and non-cash charges. But even if we include cash expenses relating to past acquisitions, my sums suggest underlying operating profit rose from 72% from $5.4m to $9.3m.
Too late to buy?
Accesso Technology’s share price of 2,650p puts the stock on a 2018 forecast price/earnings ratio of 47. It would be easy to view this market-leading business as fully-priced, but earnings are expected to rise by 34% over the next year, reducing the 2019 forecast P/E to 35.
I think further gains are possible. If I was a shareholder I would certainly sit tight after today’s results.
Simple done well
My next stock is a great example of how a simple concept, executed very well, can be a great investment.
Patisserie Holdings (LSE: CAKE) isn’t very high tech compared to Accesso Technology. But the company — which owns café group Patisserie Valerie — has grown from eight branches in 2006 to more than 200 today. Since its flotation in 2014, profits have doubled and the share price has risen by 125%.
High profit margins and strong cash generation mean that the group has funded this expansion without needing much debt. Indeed, Patisserie Holdings’ free cash flow is so strong that the group’s net cash balance has risen from £6.1m in 2015 to £28.8m at the end of March 2018, despite regular store openings.
Growth + income
I can see two opportunities here for investors. The first is that the expansion of the Patisserie Valerie chain will be complemented by another big success. The company already operates a number of other bakery brands, but could also branch out through acquisition.
The other possibility is that management will be content to focus on maximising the profitability of its existing business. As expansion slows, the amount of cash available for dividends should rise sharply. This could make the stock an attractive income option, rather like some pub stocks.
In either case, I think Patisserie Holdings looks fairly valued on a 2018 forecast P/E of 24, falling to a P/E of 22 for 2019. I’d hold at current levels, and buy on the dips.
