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Two under-the-radar growth stocks I’d buy today

To make money in the stock market, you don’t need to buy the latest ‘hot’ stocks that every investor is talking about. There’s plenty of money to be made buying companies that the majority of investors haven’t even heard about. With that in mind, here’s a look at two under-the-radar stocks that I believe look interesting right now.

Sanne Group

Sanne Group (LSE: SNN) provides outsourced administration, reporting and fiduciary services to asset managers, financial institutions, family offices and corporates. The company has over 1,000 clients across the Americas, EMEA and Asia Pacific and administers funds in excess of £160bn. The stock floated in April 2015 at 200p, and has surged to over 750p in less than two-and-a-half years.

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The company is benefitting from strong demand for its services, as a result of increased regulation and cross-border investment, combined with the “growing expectation for independent oversight.” Through both acquisitions and organic growth, Sanne Group has enjoyed significant growth over the last three years, with its top line rising from £26m in FY2013 to £63.8m last year. Underlying earnings per share jumped from 13.9p to 17.4p last year, an increase of 25%.

The outsourcing specialist released interim results this morning, and the numbers look impressive. Revenue surged a formidable 104% to £56.3m, of which 15.3% was organic growth, and underlying profit before tax rose 105% to £20.9m. Underlying diluted earnings per share increased 60% to 13p, and the company lifted its interim dividend by 31% to 4.2p. Furthermore, management advised that as a result of a lower expected effective tax rate, full-year underlying earnings are expected to be marginally ahead of previous expectations.

The shares have pulled back a little this morning, which is probably not a bad thing after a near 70% rise in the last 12 months. I don’t think the current valuation of 31 times FY2017 consensus earnings estimates is unjustified, given the company’s growth history.

NCC Group

Another stock that could be worth a look right now, for risk-tolerant investors, is cyber security expert NCC Group (LSE: NCC)

Shares in NCC Group enjoyed a strong rise between 2013 and 2016, as the company made a series of acquisitions that boosted its top line. However, in late 2016, it became apparent the cybercrime specialist had grown too quickly, and back-to-back profit warnings saw the stock plummet from above 350p, down to around 110p.

NCC is operating in a fast-growing industry, as cybercrime is one of the single biggest threats to businesses, governments and individuals in today’s world. So the vital question is – can the company turn things around? I’m inclined to think they can.

City analysts forecast net profit of £20.7m for FY2018, a significant rebound from the £56.6 net loss recorded in FY2017, and earnings per share are expected to come in at 7.3p, up from 6.7p last year.

In July, management said: “When we have successfully managed our way through this transitional period, improved our organisation and how we go to market, we see significant upside opportunities and material value creation. The Board is confident that the Group can deliver sustainable earnings growth and enhanced shareholder value once it has more robust foundations in place.”

The investment case is clearly not risk-free, however for risk-tolerant investors with a long-term investment horizon, I believe there could be an opportunity here.

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Edward Sheldon owns shares in NCC Group. The Motley Fool UK owns shares of NCC. 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.

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