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2 hot growth stocks with spectacular potential

Accommodation play Dalata Hotel Group‘s (LSE: DAL) focus on the thriving Irish tourism sector establishes it as one of the hottest, and potentially most undervalued, hotel operators on the London stock market in my opinion.

Dalata — which controls the Clayton Hotels and Maldron Hotels brands — sources almost two-thirds of total profits from Dublin alone, but is embarking on exciting expansion elsewhere to keep the bottom line booming.

Chairman John Hennessy commented this month that “following another year of significant growth in the size of our portfolio and earnings in 2016, trading performance in the first four months of 2017 has been marginally ahead of expectations.”

And Dalata keeps on investing heavily to facilitate future growth. The company has 1,200 new hotel rooms in the pipeline, and has a variety of hotels across The Emerald Isle and the UK due to be opened through the course of 2018.

More specifically, Dalata has its eyes on creating a much larger footprint in Britain, as well as opportunities to buy the freeholds of some of its sites in Ireland to avoid unfavourable rent reviews later down the line. The hotelier this month bought the freehold of certain elements of the Clayton Hotel Cardiff Lane and Clarion Hotel Liffey Valley sites in Dublin for €62.5m.

Get your head down

Dalata has seen earnings detonate in recent years and, if broker forecasts are to believed, investors can expect the bottom line to keep on surging.

A 70% earnings advance is chalked in for 2017, resulting in a P/E ratio of 15.9 times. This figure nudges marginally above the widely-regarded value benchmark of 15 times but is great value given the prospect of further, and sustained, profits growth (an extra 14% rise is expected for 2018 alone).

While Dalata has seen its share price continue its heady ascent (indeed, the hotelier hit another record peak of 450p per share just today), I expect the stock to keep moving higher as earnings steadily expand.

Pumping powerhouse

The City is also in agreement that Spirax-Sarco Engineering (LSE: SPX) should deliver solid earnings expansion in the years ahead. A 17% advance is predicted for 2017, and is expected to be followed with an 8% rise in 2018.

The steam pump play advised this month that an “improving economic background” had helped organic sales in the first four months of 2017 rise above the same period a year ago. And more specifically, Spirax-Sarco has seen sales at its Steam Specialties division improve across all territories, particularly in the hot growth markets of Asia as Chinese and Korean demand takes off.

And excitingly for growth hunters, Spirax-Sarco noted that it intends to “prioritise investments for growth over further margin expansion.” The company sucked up German boiler system specialist Gestra earlier this month for £160m.

I reckon Spirax-Sarco remains a terrific engineering pick irrespective of its high forward P/E ratio of 26.1 times.

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Royston Wild 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.