These 2 hot growth stocks seem unstoppable

Despite the fact the company may have attracted plenty of negative publicity in the past, there’s no denying Ryanair (LSE: RYA) is a growth champion and one of the market’s best-performing stocks. 

Over the previous five years, as the company has gone from strength to strength, shares in the company have gained 255% excluding dividends. Over the same period, the group has returned approximately £1.6bn to shareholders via dividends, which works out at around £1.33 per share.

Further growth ahead? 

Over the past four years, Ryanair’s pre-tax profit has more than doubled while revenue has increased by around a third. City analysts expect the group to grow even more in the years ahead. For the year ending 31 March 2017, earnings per share growth of 14% has been pencilled-in, followed by growth of 13% for the following fiscal year and 7% the year ending 31 March 2019. 

Ever since its birth, analysts have questioned whether or not Ryanair’s growth can continue and the company has continued to defy expectations year after year. There’s no reason to believe this trend will fall apart going forward. Even though competitors are trying to edge in on Ryanair’s market, the company already has a lead in the market for low-cost air travel and massive economies of scale means the firm can offer customers rates larger carriers cannot. 

With management focused on growth, the group can use its key advantages over larger peers to expand into new markets and reach even more customers. Last year, the company announced it expects to carry 200m passengers by 2024, up from 119m for 2016. Based on this projection, the shares look cheap trading at a forward P/E of around 18.

Lucrative returns 

Over the past five years, shares in XLMedia (LSE: XLM) have only returned 64% excluding dividends, which makes the company look lazy when compared to Ryanair. Nonetheless, since 2013 revenue has grown threefold and so has pre-tax profit. 

Analysts are expecting the company to chalk up low double-digit growth for 2017 followed by high single-digit growth for 2018 taking earnings per share to 11.4p, up 185% from the 2014 low of 4p per share.

XL is growing steadily and the company’s valuation does not reflect that. At the time of writing, shares in the group are trading at a forward P/E of 10 and support an extremely attractive dividend yield of 5.5%. The payout is covered nearly twice by earnings per share. It’s this low valuation and attractive dividend yield that leads me to believe the company is a great growth investment. As XL hits City forecasts over the next few years, the market should re-rate the shares, leading to a higher growth multiple. Also, as earnings grow and the company proves its dividend yield is sustainable, income seekers should flock to the stock, boosting the shares further.

On the road to a million

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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. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.