If you have just £1,000 to invest and are looking to get the most bang for your buck, then high growth stocks could be the best option. I believe Ricardo (LSE: RCDO) is one of these.
Ricardo is a collection of consultancy businesses, which offer advice to the engineering, technical and environmental sectors. The company has reported steady growth over the past six years, with net profit growing at a compound annual rate of 2.3%. This rate isn’t particularly attractive, but what I’m interested in is the group’s future potential.
Booming market
According to its fiscal 2019 results, statutory earnings per share grew by 12% last year on the back of revenue growth of 2%. Further, the group’s order book expanded by 6% on a reported basis to £314m.
With the world becoming more and more concerned about the environment and the impact climate change might have on our day-to-day lives, I see a bright future ahead for Ricardo.
Demand for environmental consulting services is only going to increase going forward, and the company is well placed to capitalise on this growth. Indeed, commenting on today’s results, CEO Dave Shemmans said: “We continue to invest in technologies, services and digital products to aid our blue-chip clients — together we create sustainable solutions to address the key issues of climate change, air quality, global stability and the management of scarce natural resources.“
Double your money
So the market is there, Ricardo just needs to execute. Based on its track record, I believe it can. However, the market seems wary.
At the time of writing the stock is trading at forward P/E of just 11.5, even though City analysts are expecting double-digit earnings growth next year. I think this could be an excellent opportunity for growth investors to buy into a business with a bright future at a discount price.
On top of this, the shares support a dividend yield of 3%. If earnings continue to grow at around 10% per annum, even without any multiple expansion, I think this stock could double in value over the next two years.
Income champion
Another growth stock that I am eyeing up at the moment is Arrow Global (LSE: ARW). Arrow buys, services and collects non-performing loans. Put simply, it is a debt collector. Financial institutions and companies sell the business portfolios of unsecured and defaulted loans, and Arrow tries to make a profit by recovering the debts.
Ethical considerations aside, business is booming for the company. Over the past six years, net profit has grown at a compound annual rate of around 15%. City analysts expect the business to earn 36.8p per share this year, putting the stock on a forward P/E of just 5.8. Earnings growth of 17% is expected for 2020.
Arrow returns most of the cash it generated from operations to shareholders. Last year the company distributed 12.7p per share in dividends and this year analysts are forecasting a distribution of 13.2p. At the current share price, that gives an estimated dividend yield of 6.2%.
Based on all the above, I think shares in Arrow could be worth between 300p and 400p. This implies a total return of more than 100% over the next few years, including dividends.
