It’s often said in the investment world that “the trend is your friend”. With that in mind, today I’m profiling two companies that have enjoyed strong share price momentum in recent years. Could this kind of momentum help you achieve your financial goals sooner?
Shares in FTSE 250-listed NMC Health (LSE: NMC) have trended up strongly over the last few years, rewarding long-term shareholders handsomely. Indeed, in the last year alone, the stock has risen from 1,033p to 2,106p, a gain of over 100%.
It’s not hard to see why when looking at the NMC’s financials. Revenue at the United Arab Emirates-based private healthcare services provider has surged from $551m to $1,221m over the last three years, a compound annual growth rate (CAGR) of 30%, and earnings during this period have climbed from 37 cents to 74 cents, a CAGR of 26%. FY2016 results released in March impressed the market, with revenue climbing 39% and basic earnings per share rising 61%.
Can the share price continue to rise from here? In my opinion, yes. NMC’s momentum looks set to continue this year with City analysts forecasting FY2017 revenue of $1,553m and earnings per share of 97 cents, growth of 27% and 31% respectively. Furthermore, mandatory healthcare insurance requirements in the Emirate of Dubai should boost patient volumes, and other regulatory changes such as the removal of IVF-related restrictions should provide tailwinds to the healthcare sector.
The stock trades on a forward-looking P/E of 28, which I wouldn’t classify as a bargain, however CEO BR Shetty stated in March that “we expect continued strong performance” this year, and as a result, I believe NMC’s share price momentum could continue from here.
Micro Focus International
Trading at a less demanding valuation is software specialist Micro Focus International (LSE: MCRO). Like NMC Health, Micro Focus has exhibited significant momentum in both its share price and its financials in recent years.
Revenue has climbed from $412m in FY2013 to $1,245m last year, a CAGR of 45% and the stock has registered a capital gain of 192% over the last three years, along with rising dividend payouts of 47 cents, 50 cents and 67 cents as well.
One risk to its momentum is the merger with Hewlett Packard Enterprise (HPE). Indeed, shares in Micro Focus plunged 11% last week, after HPE’s board said that preliminary indications were that revenue was down around 10% on a reported basis year-on-year in the quarter to 30 April. The decline was largely down to performance in the licence and professional services division and follows an 8% decline in the preceding quarter. This is clearly an issue to monitor closely.
However with analysts forecasting group earnings of $1.76 per share for FY2017, a gain of 15% on last year, I reckon the shares have potential to keep rising in coming years. A forward looking P/E ratio of 18.1 seems reasonable for a tech stock, especially given the company’s successful acquisition history and the fact it has been one of the best performing stocks in the FTSE 100 over the last decade. As such, I believe Micro Focus offers an attractive risk/reward skew at present.
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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Micro Focus. 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.