Is this the market’s most reliable growth stock?

Finding the market’s best growth stocks isn’t an easy process. To be able to pick out the best before the rest of the market wakes up to their potential, you have to be able to calculate a company’s projected growth rate. But most investors don’t have the time or resources available to do this. Even Wall Street’s top hedge fund managers, who look at things such as footfall in stores and competitor sales growth, struggle to pick the best growth stocks consistently. 

What’s more, it’s rare that a company can consistently grow sales year after year without tripping up. Those that can deserve to trade at a premium valuation and are highly prized by investors.

However, I believe I’ve uncovered one company that has managed to accomplish this feat, but it trades under the radar of most investors.

Year after year of growth 

Trifast (LSE: TRI) is a world leading specialist in the engineering, manufacturing and distribution of high-quality industrial fastenings, an essential but boring line of business. Nonetheless, the group’s earnings growth over the past five years has been anything but boring. 

Indeed, if the company hits City estimates for growth this year, Trifast’s earnings will have grown at a compound annual rate of 21.8% per annum since 2012. Over the same period, shares in the company have surged by 380% excluding dividends.

It looks as if this growth is set to continue as well. Yesterday, the company issued a rather upbeat trading update for the first six months of its 2017 financial year. Underlying operating profit for the period grew 18.7%, profit before tax jumped 19.1%, basic earnings per share rose by a quarter and the company generated enough cash during the period to be able to move from a net debt position of £16m at the end of the 2016 financial year to net cash of £2.1m at the end of September.

But despite Trifast’s explosive growth over the years, investors have been reluctant to place a high multiple on the company’s shares. Since 2012 the shares have traded at an average P/E of 12. That being said, this year the market has opened up to placing a higher valuation on the company and shares in Trifast currently trade at a forward P/E of 15.9 but even this multiple appears to undervalue the company.


City analysts believe Trifast’s earnings per share will only grow by 4% for the year ending 31 March 2017 yet with 25% earnings growth reported for the first half of the year; there’s a reason to believe that these forecasts could be greatly understating its growth potential. 

If the company repeats its first-half performance it could be on track to report earnings per share of 12.9p for the fiscal year ending 31 March 2017 indicating a forward P/E of 14. This ratio may still seem high for a boring company like Trifast but 25% earnings per share growth and a P/E of 14 gives a PEG ratio 0.6. A PEG ratio of less than one implies that the stock in question offers growth at a reasonable price. 

Overall, Trifast has a history of rapid growth, trades at an attractive valuation and holds net cash — everything a perfect growth stock should have. 

Small-cap bargain? 

If you're not interested in Trifast, there's one company out there that our analysts believe has similar qualities.

The Motley Fool's top analysts have labelled this company as one of the market's hidden gems whose potential upside, they reckon, could be as great as 50%.

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Rupert Hargreaves has no position in any shares mentioned. 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.