You don’t have to dive into the world of tiny speculative companies to find stocks with outstanding growth potential. FTSE 100 technology giant ARM Holdings (LSE: ARM) (NASDAQ: ARMH.US) and FTSE 250 firms Just Eat (LSE: JE) and Cineworld (LSE: CINE) all have strong franchises and bright growth prospects.
ARM’s innovative chip designs have long been ubiquitous in smartphones and other mobile devices, driving average annual earnings growth of 29% over the last five years.
As the world becomes more digital and more connected, ever more leading companies are choosing to deploy ARM’s smart and energy-efficient technology. Building on its leadership and strong customer relationships in mobile computing, ARM has strong drivers for future growth in processors for networking and server applications, and microcontrollers and smart sensors for the Internet of Things.
The company will announce its half-year results later this month, having reported an “encouraging” start to 2015 at the Q1 stage. For the full year, analysts are expecting earnings per share (EPS) of 31.5p, putting the company on a price-to-earnings (P/E) ratio of 33, which falls to 27.5 for 2016 on the back of forecast 20% earnings growth. The P/Es are on the cheaper side of the average rating ARM has commanded in recent years, and I rate the stock a buy at these levels.
Just Eat is a relative newcomer to the stock market, but has rapidly become the world’s leading online and mobile marketplace for takeaway food. The company has made a series of international acquisitions, with the aid of £100m of the funds raised at its IPO last year. And a further £445m was raised in May this year to acquire the market leader in the Australian and New Zealand online takeaway marketplace.
Analysts forecast Just Eat will deliver EPS of 5.8p this year (38% growth), and have pencilled in around 9p for 2016 (54% growth), giving P/E readouts of 65 and 42. These are high ratings, but putting next year’s P/E of 42 against EPS growth of 54%, gives a price-to-earnings growth (PEG) of 0.8, which is on the good value side of the fair value marker of 1.
Cineworld Group — founded in 1995 and listed on the stock market in 2007 — has grown organically and by acquisition to become one of the leading cinema groups in Europe, with the number one or number two position in the UK and Ireland, Poland, Czech Republic, Slovakia, Hungary, Bulgaria, Romania and Israel.
Cineworld put out a first-half trading update today, reporting several new cinema openings, with more openings to come in the second half, as well as a promising upcoming season of new film releases. Management expressed confidence in delivering a full-year performance in line with market expectations.
As you might expect in a traditional bricks-and-mortar business, Cineworld’s growth can’t compete with the super-dynamic expansion that asset-light Just Eat can achieve in the new world of mobile takeaway food ordering. Cineworld is expected to post 12% earnings growth this year with EPS at 27.5p, and the same growth next year, taking EPS to 30.7p. P/E ratings of 17.5, falling to 15.5 are cheaper than the FTSE 250 average, and Cineworld’s more measured rate of growth comes with a decent dividend yield on top: a forecast 3.1% this year, rising to 3.5% next year.
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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended ARM. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.