The two growth stocks I’m looking at today have both delivered 100% gains for shareholders over the last year. Despite these gains, I think both shares could keep rising over the next few years.
A long-term tech winner?
My first pick is Calnex Solutions (LSE: CLX). This Scottish technology business makes specialist testing and measurement equipment for telecoms networks. Calnex was founded by chief executive Tommy Cook in 2006 and floated on London’s AIM market in October 2020.
Cook retains a 21% shareholding, so his interests should be well-aligned with those of shareholders.
I’m normally quite cautious about newly-floated businesses. But I’ve been impressed by what I’ve learned about Calnex so far. I think this growth stock could be a long-term winner.
Firstly, I think demand for the company’s network emulation and network synchronisation should continue to grow for the foreseeable future. Management says that 5G and cloud computing are driving “growth in the need for test and measurement” solutions. I don’t see this trend changing anytime soon.
The other reason why I like Calnex is that it’s already highly profitable and well financed. Results for the 12 months to 31 March showed revenue jumped 31% to £18m, with pre-tax profit up 22% to £3.6m. Calnex generated an operating profit margin of 21% during the year and reported net cash of £12.7m at the end of March.
Of course, Calnex isn’t a sure thing. With a market-cap of £85m, this is still a small company that’s new to the market. My main worry is that the company’s strong growth may slow. Analysts are expecting profits to be much flatter this year before returning to growth in 2022. But there’s no guarantee of this.
Even so, I like what I’ve seen of Calnex. The price tag of 25 times forecast earnings doesn’t seem too high to me for a growing company, with profit margins of more than 20%.
This is a stock I’d buy today and tuck away for a few years.
A growth stock with a moat?
My second company is construction materials group Sigmaroc (LSE: SRC). This may not sound like a classic growth situation, but hear me out.
Sigmaroc’s focus is on buying established local companies which already have a good share of their local market. Examples include stone quarries and concrete and block manufacturers. Products like this are generally made and sold as locally as possible, because they’re heavy but cheap. This means long-distance transport adds a lot to the cost of the item, giving locally-produced alternatives an inbuilt advantage.
Sigmaroc’s revenue rose 77% to £124.2m last year, thanks to continued growth and acquisitions. Underlying pre-tax profit for the year rose 45% to £12.2m.
The main risk I can see is that ‘buy-and-build’ models — where a company uses regular acquisitions to expand — can be risky. An economic slump could also hit demand from the construction trade.
No growth stock is without risk, but Sigmaroc’s a business I’d be happy to keep buying. Although the shares look pricey on 20 times 2021 forecast earnings, the company’s latest trading update reported continued like-for-like growth. I think this is a business that could get much bigger.
