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2 new growth stocks with massive potential

I’m always interested when companies first arrive on the stock market because the shares often perform well.

Entrepreneurial directors

Underlying operational progress can be solid, perhaps driven by management teams keen to make an impression and at their entrepreneurial best, and by new funds that open the door for investment in growth.

Xafinity (LSE: XAF) floated on the main market of the London stock exchange on 16 February. The firm makes its living as an actuarial, pensions and employee benefits consultancy. In other words, the firm delivers solutions, and advisory and compliance services for pension providers and deals with more than 550 schemes.

De-risking pension schemes

The main thrust of operations is to achieve pension de-risking solutions by combining expertise, insight and technology to address the needs of both trustees and companies. The directors reckon Xafinity’s business is built on trust and relationships resulting in a ‘stable business’, which I reckon leads to an interesting case for investing in the firm.  

Although new to the market, Xafinity can trace its roots back more than 40 years as an entity operating within larger businesses. Now as a standalone the future looks bright for the firm. Today’s full-year results demonstrate steady progress with revenue up 1% compared to a year ago and adjusted underlying basic earnings per share up 4%.

Growth opportunities

However, the dominant feature of these results is the effect of the initial public offering (IPO), which raised £50m for the firm to plough into debt reduction and plunged headline results for profit into lossmaking territory because of the flotation costs.

Looking forward, the directors see the defined contribution pension scheme market as offering “really exciting”growth opportunities as scheme managers come under pressure to sort out their well-reported problems. I think Xafinity is one to watch closely from here.

Easy to do business with

Meanwhile, UK-focused Metro Bank (LSE: MTRO) is another recent entry to the London market having floated during March 2016. The firm is surging towards profitability with City analysts following it predicting virgin earnings this year and rapid escalation of profits next year.

It was established in 2010, declaring itself to be the first high street bank to open in the UK in over 100 years. Built to challenge the old guard — names such as Barclays, Lloyds and HSBC — the firm is gaining ground in the market fast, driven by initiatives such as longer branch opening hours to suit customers and a no-appointment-necessary approach to conducting business.

Impressive growth

At today’s share price around 3,611p, the valuation looks heady with the forward price-to-earnings ratio running just over 50 for 2018. However, digging into the growth numbers flying out of the company makes me think that there must be a good dollop of entrepreneurial drive built into the management team. There is no doubt that the firm is winning in the scrum for customers in Britain.

I think Metro Bank is well worth keeping an eye on with a view to buying the shares on any future weakness.

This could be one of the best FTSE 250 buys

Xafinity and Metro Bank both look set to deliver further gains for investors, but the Motley Fool’s outperforming analysts have spotted a FTSE 250 company with a compelling growth outlook.

The firm is a UK business with a well-known brand that could grow by up to 200%. If you'd like full details of this potential investment, download A Top Growth Share From The Motley Fool today. This exclusive report is free and without obligation. To get your copy, just click here now.

Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has recommended Barclays, HSBC Holdings, and Lloyds Banking Group. 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.