Finding stocks that have the potential to double your money is difficult, but they are out there. I believe Avast (LSE: AVST) is one of these rare gems.
Booming market
The company is a leader in cybersecurity, a market that’s seeing explosive growth. Analysts estimate worldwide spending on cybersecurity products was around $100bn in 2017 and is forecast to hit $170bn per annum by 2022.
Avast is trying to grab a small share of this market. Revenue was just $251m in 2015 and is expected to hit $869m for 2019. Analysts are expecting further growth in 2019. They’ve pencilled in revenues of $926m for 2020.
Staying ahead of cybercriminals is essential if Avast wants to maintain its reputation. That’s why the company is spending more than $70m a year on research and development to do just that.
However, this spending is only a fraction of the group’s overall income. Last year, the firm reported an operating profit margin of nearly 40%. Therefore, most of Avast’s revenue growth goes straight to the bottom line.
As sales expand, the City is forecasting earnings growth of 16% for 2019 and nearly 10% for 2020. These forecasts put the stock on a 2020 P/E of 13.8, which undervalues the business, in my opinion. Indeed, shares in London-listed peer Sophos are currently dealing at a forward P/E of 29.9, more than double Avast’s current valuation.
That’s why I think Avast could double your money. Not only is the stock trading at a substantial valuation discount to peers, but it also looks as if earnings have the potential to continue to grow at a double-digit annual rate for many years to come.
Booming profits
If Avast is not for you, then you might want to take a look at financial services group Investec (LSE: INVP). Over the past five years, shares in Investec have fallen by around 20% excluding dividends. But despite this performance, the company’s underlying business is much stronger today than it has ever been.
The share price might have declined 20% since 2014, but net income is up 60% over the same period. Meanwhile, Investec’s dividend to shareholders has been hiked at an average rate of 5.2% per annum since 2013.
Usually, when a company’s share price declines in the face of rising profits, it’s a sign the business is issuing a lot of new shares, diluting existing shareholders, and pushing the price down. However, in this case, that’s not happening. Earnings per share have increased by 60% since 2014.
I think this presents a fantastic opportunity for investors. After recent declines, shares in Investec are dealing at a forward P/E of 8, below the sector median of 13.
On top of the above, the stock supports a dividend yield of 5.8%. A return to the sector median multiple could imply a gain for shareholders of 63% combined with two years of dividend income, and you could be looking at a total return of nearly 100%.
In other words, Investec could be an excellent buy for value-seeking investors.
