2 soaring growth shares that could have further to go

In my younger days I was an avid follower of growth shares. They’re riskier, but they can be profitable. Here are two whose shares have already climbed, but which show no sign of stopping yet.

Recruitment rising

FDM Group (LSE: FDM) is in the consultancy business, and specialises in “recruiting, training and placing its own permanent IT and business consultants (‘Mounties’) at client sites.” It supplies other contract staff and offers various professional services, but it’s all tied to high-tech stuff.

And it’s been doing pretty well at it, turning in healthy profits since flotation in June 2014. The year just ended in December 2016 was no exception, with the firm growing its number of Mounties to 2,705 from 2,022 a year previously, and boosting the revenue they generated from £119.4m to £167.3m. The result was a 25% rise in adjusted pre-tax profit to £37.5m, with adjusted earnings per share up 23% to 25.8p. The dividend was hiked by 19% to 19.6p, to provide a 2.7% yield on today’s 716.5p share price.

The share price has soared by 124% since flotation, so that was one IPO that was definitely worth getting in on. I reckon there’s more to come over the next few years too, with analysts forecasting EPS rises of 14% in 2017 and 8% in 2018. That would put the P/E at around 23.5, which is relatively high, but I can see future years of earnings justifying it — and it is backed by an absence of debt and £27.8m in cash on the books.

Chief executive Rod Flavell spoke relatively modestly, saying: “I believe the group is well placed to continue to deliver operational and financial progress this year and beyond.” And with the company seeing increasing demand from existing clients while attracting new clients, business looks good.

I do envisage the share price climb slowing now, but I’m optimistic for the long term.

Software success

If you want to see another high flyer reporting today, look no further than Microgen (LSE: MCGN), whose shares are up 150% since their recovery started in August 2015, to 254p. That year saw a return to EPS growth after a few years of falls, and the resumption of dividend rises. And that’s continued into 2016, with the “leading provider of business critical software and services” reporting impressive figures.

Revenue is up 35% to £43m (and up 29% on a constant currency basis), with adjusted operating profit up 26% to £9.5m (or 12%, constant currency) and adjusted EPS up 34% to 12.3p. That allowed the company to lift its full-year dividend by 19% to 5p, confounding the analysts who had expected it to remain flat at 4.2p until 2018.

Chairman Ivan Martin described 2016 as one of “excellent progress“, while highlighting the company’s Aptitude Software for “enabling the business to secure record numbers of significant new business contracts.” The board is apparently “confident that the progress achieved in the past year will continue in 2017..

City forecasts have gone off the boil a little, with no real overall EPS progress predicted for the next two years, so that might take the shine of a P/E that’s up around 21. That would be fine for a stock with EPS growth forecast, but otherwise could be a bit stretching.

But their dividend predictions are already wrong, and I can see forecasts for 2017 and 2018 being uprated now — and I’ll be surprised if we don’t see further underlying earnings growth this year.

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Alan Oscroft 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.