Finding stocks which could offer long-term capital growth is becoming more challenging. The FTSE 100 has risen to an all-time high this year, with valuations now at a higher level than they have been for some time. This has made life more difficult for investors seeking bargain-basement growth opportunities. However, a number of stocks could deliver high returns over a sustained period – even after the wider index’s appreciation. Here are two prime examples which could be worth buying right now.
Reporting on Monday was clothing retailer Bonmarché (LSE: BON). The company announced a fall in pre-tax profit of almost 40%, as like-for-like (LFL) sales growth turned negative. Even online sales failed to grow by as much as many of the company’s competitors have been reporting of late, with a rise of just 2.2% versus the prior year. This meant that total sales were only marginally higher, which is clearly disappointing for the company’s future outlook.
Despite this, the results were in line with expectations. It is currently in the midst of a major transformation programme which has the potential to significantly improve its financial performance. It is seeking to reboot its product offering, while also delivering an improved shopping experience for customers. It is attempting to boost customer loyalty through unlocking the potential of its Bonus Club loyalty scheme, while also improving efficiencies through new systems.
Looking ahead, Bonmarché is expected to report a rise in its bottom line of 27% in the next financial year, followed by 21% in the year after. This has the potential to boost investor sentiment in the stock – especially since it trades on a price-to-earnings growth (PEG) ratio of just 0.3. As such, and although the UK economy faces an uncertain future, now could be the right time to buy the stock for the long term.
Also offering strong growth potential is agriculture and engineering specialist Carr’s Group (LSE: CARR). It is expected to report a rise in its bottom line of 31% in the next financial year. This would come after a somewhat mixed period for the business, with its bottom line due to fall by 23% in the current financial year.
With Carr’s trading on a PEG ratio of 0.4, it seems to offer excellent value for money. Its margin of safety has been widened to at least some extent by a fall in the company’s share price of 8% in the last year, which has been a disappointing performance at a time when many stocks have been able to deliver strong capital growth.
Its outlook seems bright due in part to its low valuation and high growth prospects, but also because of its impressive income potential. Carr’s currently yields just 2.8%, but is forecast to increase dividends per share by 7% over the next two years. This means its income return should continue to beat inflation over the medium term. And since dividends are covered 2.7 times by profit, further growth in shareholder payouts could be ahead over the long run.
Peter Stephens 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.