The Motley Fool

These 2 growth stocks could still make you rich

Image: Public domain

It’s been a rough year for shareholders of Rhythmone (LSE: RTHM). Year-to-date shares in this online advertising company have fallen nearly 20% thanks to concerns about the state of the digital advertising market.

City analysts are concerned that Google and Facebook are hoovering up all of the online advertising markets, pushing out other businesses such as Rhythmone and its more substantial peer System1. Even WPP and ITV haven’t escaped. Shares in WPP have registered the most substantial decline this year, down by around a quarter year-to-date. 

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

However, despite these concerns, figures from Rhythmone published today show that the company continues to make progress. 

For the half year to the end of September, management is expecting to report revenues of $112m to $114m, up from last year’s first-half number of $67m. The gross margin from operations is on track to come in at 38%, up from last year’s 35.4% and for the period the company is projecting adjusted EBITDA of between $1.5m and $2m, after last year’s first-half loss of $2.6m. 

Growth through acquisitions 

Rhythmone is already growing organically and to help drive further growth, the company announced the acquisition of YuMe Inc for $185m at the beginning of September. 

YuMe will help the firm’s expansion plan as the company offers “data-driven audience insights that allow brand advertisers to engage and influence their most promising audiences and increase engagement and sales,” which is similar to Rhythmone’s existing business model. The two businesses are roughly the same size, and this merger of equals should allow the combined entity to compete more efficiently with larger peers. For 2016, YuMe reported sales of $160m and adjusted EBITDA of $10.9m. 

This acquisition is expected to turbocharge Rhythmone’s growth. For the financial year ending 31 March 2019, City analysts have pencilled in earnings per share of 42p, up 442% year-on-year. Based on this projection, the company is trading at a forward (2019) P/E of 7.3, far below the IT services sector median of 19. I believe that if the shares can gain an average sector valuation, they could be worth as much as 798p, 157% above current levels. 

Enormous potential 

As well as Rhythmone, I think FairFX (LSE: FFX) could generate impressive returns for investors. It is another growth stock that looks undervalued based on its potential. At the time of writing, shares in the provider of foreign exchange payment services don’t seem particularly cheap as they trade at a forward P/E of 365. However, analysts believe that the company is on track to report a 26-fold increase in pre-tax profit for 2018, which should translate into earnings per share of 5.4p.

At the end of September, a trading update from the firm confirmed that it is on track to hit this target. Revenue for the first half expanded 33%, and the company completed the acquisition of CardOne post-period-end. This deal should accelerate the group’s stated strategy of disrupting the SME banking space. Management believes that there should also be opportunities to improve margins and cross-sell products through the combination of the two businesses. 

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Rupert Hargreaves owns shares in ITV. The Motley Fool UK owns shares of and has recommended Alphabet (A shares) and Facebook. The Motley Fool UK has recommended ITV. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.