The Motley Fool

2 growth stocks for ambitious investors

The FTSE SmallCap index can be a happy hunting ground for ambitious investors. The companies in this index currently sport market capitalisations of between about £100m and £800m. At least some of them will increase in value by five-fold, 10-fold or even more in the coming years.

Today, I’m looking at two companies from the index that I believe have considerable potential to be big winners.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Arrow

Established in 2005 and listed on the stock market in 2013, Arrow Global (LSE: ARW) is valued at just over £700m at a current share price of 400p.

The core of Arrow’s business is acquiring portfolios of non-performing loans from financial institutions, such as banks and credit card companies, as well as from retail chains, student-loan firms, utilities and so on. It buys the loans at a discount to face value and establishes affordable repayment plans for the indebted individuals and businesses. It expects to get back twice its investment over any 10-year period.

Potential FTSE 100 firm

Arrow currently operates in the UK, the Netherlands, Belgium, Portugal, France and Italy. Its aim is to become Europe’s leading purchaser and manager of debt. This is ambitious but credible, in my view, and we could be looking at a future FTSE 100 firm.

Last year, earnings increased 29% and a similar increase is forecast for the current year, giving an undemanding price-to-earnings (P/E) ratio of 12 and a hugely appealing price-to-earnings growth (PEG) ratio of 0.4. There’s also a prospective dividend yield of 2.8%.

With management confident it can deliver a medium-term underlying return on equity percentage in the mid-20s, high-teens earnings growth and a progressive dividend, the current share price looks highly attractive to me and I rate the stock a ‘buy’.

On The Beach

On The Beach (LSE: OTB) was founded in 2004 and joined the stock market in 2015. At a current share price of 380p, its market cap is a bit under £500m.

The company’s disruptive online-only business model has enabled it to rapidly capture around 20% of the UK online short-haul beach holiday market, with its largest competitors being TUI and Thomas Cook. On The Beach is intent on increasing its market share and its recent (earnings-enhancing) acquisition of another established online brand, Sunshine.co.uk, further strengthens its position.

Expanding into Europe

In addition to its growth prospects in the UK, it has a vision to become Europe’s leading online retailer of beach holidays. Scandinavia is its first target and its Swedish business is already growing fast from a low base. Its Norwegian site has only recently launched.

Analysts are forecasting group earnings growth of over 30% for the company’s financial year ending 30 September, giving a P/E of 22 and a PEG of 0.7. There’s also a prospective dividend yield of 0.8%. These value credentials aren’t quite as strong as Arrow’s but are compelling enough in their own right for me to also rate this stock a ‘buy’.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

G A Chester 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.