The Motley Fool

Should you snap up these two great growth shares now?

What’s a growth share? It can be a company starting out small and hoping to hit the big time, or possibly one that’s recovering from a bad spell and set to hit a new growth phase. Here’s one of each that must be worth a closer look.

Challenger bank

There was once a time when the dinosaurs were facing a catastrophe, and that left open all sorts of niches for the nimbler footed new mammals that were emerging. Something similar happens in technology, business and all sorts of fields, and we could be looking at a new era of opportunities for up-and-coming banking operations.

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In particular, the times ahead could be very good for Virgin Money Holdings (LSE: VM). Without the legacy of bad debts, PPI mis-selling, and all the rest of the banking crisis fallout, Virgin is a small fish in a pond full of rich pickings.

Virgin paid a modest 1.2% dividend in its first year of positive earnings in 2015, and that’s set to rise this year and next to provide 2.1% by 2017. Those aren’t great dividends yet, not when we compare them to the likes of Lloyds Banking Group‘s forecast yields of better than 5%, but it’s a good start and they’d be more than five times covered by earnings.

Forecasts put Virgin shares on a PEG ratio (which compares P/E to forecast growth rate) of a mere 0.3 for this year (with anything under 0.7 considered a good growth indicator), as EPS are expected to grow by 30%. The PEG would rise to around 1.1 on 2017’s smaller forecast growth, which isn’t so brilliant, but we’re still in difficult times for banks and still in early days for Virgin — which I think has a great future.

There’s a pretty strong buy consensus from the City’s analysts, and with the shares at 309p I couldn’t disagree.

Cruising back

Cruise operator Carnival (LSE: CCL) has seen its shares climb by 42% over the past two years, to 3,376p, although the past 12 months have been pretty flat.

The gain was driven by rapid growth in earnings per share in 2014 and 2015, after several years of falls. And that looks set to continue, with forecasters suggesting further strong gains this year and next, putting the shares on a PEG ratio for 2016 of only 0.2, rising to a still desirable 0.7 on 2017 forecasts. The expected growth doesn’t seem to be reflected in the shares’ P/E multiple, which stands at below average levels of 12 to 13.

Against that is Carnival’s relatively low dividend, which yielded only 2.4% last year. But that did represent the first hike in the annual payment for years, and in its first-half report in July the company spoke of returning free cash to shareholders as it lifted the interim dividend.

At the same time, we heard that revenues were growing, and that advance bookings for the remainder of the year were “well ahead” of 2015, at slightly higher prices.

One downside with Carnival is that it’s a very capital-intensive business — those cruise liners don’t come cheap. But there’s a long investment cycle in this sector, and increasing human longevity in Carnival’s key markets could easily see the company set for a couple of decades of attractive growth.

Cruising to a million?

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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.