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2 high-flying growth shares that could have more to give

Back in my early days of growth investing, a friend commented that I seemed inordinately fond of shares that had already gone up. But if I’d been put off by momentum, I’d have missed quite a few good picks over the years.

A future multibagger?

One that catches my eye today is business services firm Experian (LSE: EXPN), which does a good bit more than consumer credit checking. 

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Experian shares have climbed by 160% in the past 10 years, putting on 30% in the past 12 months alone — and that’s after a 3.7% drop Thursday to 1,632p, on full-year results day. 

Benchmark pre-tax profit was up 6%, and benchmark earnings per share rose by 5% to 88.4 cents, but that was a little behind forecasts. I think the price fall on the day is typical of growth companies — whenever figures come in even slightly short of expectations, we see a quick desertion regardless of long-term prospects.

Speaking of the long term, Experian has been strategically repositioning its consumer and B2B businesses, and told us it has made “considerable progress” on that score. The firm’s Credit Services, Decision Analytics and Marketing Services offerings have apparently enjoyed strong growth, and Experian says it sees “significant growth opportunities emerging over the medium term.”

Cash generation

What I like best about Experian is the strongly cash-generative nature of its business. With the lifting of its full-year dividend by 4% for a modest 2% yield, the company has returned more than $700m to shareholders over the year, and intends to repurchase shares to the value of $600m in the current year.

We are looking at forward P/E multiples of around the 20 level, which is ahead of the market average. But I see that as decent value for a stock that I think has significant potential for further growth in the coming decade.

A bigger winner

There’s been an even bigger rise at 3i Group (LSE: III), which has seen its share price soar by 370% over the past five years. But again we saw a drop on results day, with the price down 2% to 825p at the time of writing.

The investment specialist enjoyed a total return of £1,592m (36%), which is almost double the 2016 figure of £824m, and saw its net asset value climb by 30% to 604p per share.

With high levels of cash flow, including £270m from the sale of its debt management business, 3i ended the period with net cash of £419m, up from £165m a year previously. That enabled a 20% boost to the full-year dividend, to 26.5p, which was comfortably ahead of forecasts. 

That all sounds pretty glowing, so why the price fall on the day? Well, with Brexit looming, the company warned of “another year of significant uncertainty” ahead, and uncertainty is what institutional investors seem to fear the most.

But I reckon uncertainty is the private investor’s friend, as it gives us buying opportunities that the more cautious are avoiding. This year’s dividend yields 3.2% on the current share price, and forecasts for next year’s will surely be upgraded now.

And despite that storming past performance, 3i shares are on a forward P/E of only nine. I reckon that’s cheap for a company with a long-term cash-rich future, and it could be a great buy for those who can handle a bit of short-term volatility.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Experian. 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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