Two high-growth stocks I’d buy in May

Edward Sheldon profiles two under-the-radar stocks that have potential for strong growth.

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When it comes to looking for stocks that can generate huge returns, it can pay to look away from mainstream stocks that receive constant coverage. Many smaller companies receive very little attention from the broker community and as a result, it’s often possible to find fast-growing companies that are not priced ‘efficiently.’ Here are two companies that stand out to me as high-growth opportunities.

Somero Enterprises

With President Trump looking to spend $1trn on infrastructure in coming years, I reckon I’ve found the perfect under-the-radar business to capitalise on this building boom.

Somero Enterprises (LSE: SOM) specialises in producing laser-guided equipment that assists in the installation of concrete slabs. Somero’s equipment and technology ensures a high level of precision in concrete surface flatness, resulting in the faster installation of each slab at a lower cost. Although the company has operations in Europe, China, the Middle East and Australia, the bulk of the its revenues are generated in the US.

The laser specialist’s shares have surged higher over the last 12 months, rising over 100%, and it’s not hard to see why when we examine the numbers. Somero generates a high return on equity (33%), a high operating margin (27%), strong cash flow and has minimal debt. Revenue has increased 76% over the last three years and earnings per share have risen from 13 cents to 28 cents in this time. 2016 results announced in March were excellent, with revenue jumping 13% and profit before tax increasing 22%.

However despite the impressive numbers, Somero trades on a forward looking P/E of 15.3, which seems attractive for a company that should enjoy tailwinds from Trump’s infrastructure boom. A dividend of 2.6% is also on offer, further sweetening the deal.

Augean

Hazardous waste specialist Augean (LSE: AUG) also looks like an interesting opportunity in my opinion. 

Revenue jumped 25% last year and while earnings were a little lower than in 2015, City analysts covering the stock (all two of them) are forecasting earnings growth of a huge 43% for FY2017. The 6.2p consensus earnings figure places Augean on a forward looking P/E ratio of just 10.3, which seems excellent value given the fact that revenue has grown at an annualised clip of 19% over the last five years.

Management released an upbeat statement in March, stating that the company had seen an “encouraging start to 2017 with a growing sales pipeline” and that “the board remains confident of maintaining its track record of year-on-year increases in profitability in 2017.” In a further statement of confidence, the company also hiked its dividend by 54% for the year to 1p per share.

The stock has been trending upwards over the last five years, gaining approximately 70% in this time, and if revenue and earnings continue to increase in the coming years as analysts expect, I see no reason why the uptrend can’t continue.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Somero Enterprises, Inc. 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.

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