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Two momentum growth stocks that could help you retire wealthy

Shares in software company Kainos (LSE: KNOS) had a shaky first year after flotation, getting an EU referendum-linked hammering last June. But since then, momentum has been picking up and the price has soared by 85% in less than a year, to 230p — even after a 4% drop on results day Tuesday.

The response to the results looks like a common event — a high-flying growth company reports some unexciting figures, and the price drops. Are people right to be selling today, or are we looking at a buying opportunity?

Analysts did have a fall in earnings per share of 12% pencilled-in, and the actual figures depend on how you look at them — there was a reported 18% fall, which is worse than that, but adjusted EPS fell by only 10%, which was better.

Either way, it seems like a short-term trifle to me. The provider of digital services and platforms reported a 9% rise in revenues and analysts are predicting a return to EPS growth for the coming year, with it accelerating the year after. 

Global growth

Chief executive Brendan Mooney spoke of “strong growth in Digital Services, driven by demand from existing customers, new customer acquisition and geographic expansion,” and reckoned the firm is “well-positioned for growth in the coming years.

This year’s earnings blip is at least partly down to “the funding challenge in the NHS,” but Kainos is expanding its global operations — a new office in Frankfurt brings its tally of European and US offices up to eight. And after the financial year ended, a new contract has seen the firm providing services to 38 US hospitals.

There’s a dividend too, up 5% and ahead of expectations, for a modest 2.7% yield — but it’s looking nicely progressive.

A Woodford punt?

One thing you can definitely say about Neil Woodford is that he’s not afraid of taking a blue-sky risk on companies that are not yet profitable — especially in the healthcare and biotechnology field. Horizon Discovery (LSE: HZD) is one, and though it only accounts for a tiny portion of his CF Woodford Equity Income Fund, he holds a number of similar picks.

I reckon Mr Woodford’s approach to blue-sky growth is sensible. It’s a very high risk strategy, and having a basket of different stocks should greatly improve your safety — and, after all, you really only need one or two to come good.

Horizon is into the very exciting field of therapeutic gene editing, and this month told us it “has gained exclusive worldwide rights to use a novel transposon-based technology platform that will broaden Horizon’s gene editing capabilities,” which was co-invented by its own head of innovation. It’s mainly funded by downstream royalty payments, so shouldn’t impact the cash position too much in the short term.

Jam soon?

Full-year results released Tuesday revealed a 19% rise in revenue to £24.1m, including a 45% rise in product revenue to £11.3m, and a gross margin boosted to 54%. So while there’s no profit yet (and none forecast for the next two years — though losses per share should be getting close to break-even before too long), I think these figures do provide appealing promise of profits within the next few years.

There are no meaningful fundamental ratios here, but if you’re prepared to take a bit of a punt, I see Horizon as having attractive potential.

Another great growth candidate

There are growth candidates of all shapes and sizes out there, and the tempting pick uncovered in our Top Growth Share From The Motley Fool report is already raking in pots of cash.

The past five years have brought in double-digit annual earnings growth, and the City's experts are predicting two more years of solid growth ahead of us. On top of that, a progressive dividend policy adds an extra attraction to the mix.

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Alan Oscroft 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.