The Motley Fool

Rolls-Royce Holding plc isn’t the only growth stock I’d buy with £1,000 right now

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

A stock price graph showing growth over time, possibly in FTSE 100
Image source: Getty Images.

After a hugely challenging period, the prospects for aerospace and defence company Rolls-Royce (LSE: RR) appear to be relatively bright. The outlook for the defence industry is continuing to improve and alongside improvements being made to its business model, this could lead to stronger financial performance in future.

However, it’s not the only stock which could offer high earnings growth over the medium term. Reporting on Thursday was another company that could be worth buying right now.

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...

Impressive outlook

The company in question is provider of cloud-enabled end-user and network security solutions Sophos (LSE: SOPH). Its trading update showed that it continues to make progress with its strategy. Billings in the first nine months of the financial year increased by 21%. It was able to generate strong growth across all of its regions, with the Americas and EMEA rising by 22%. Its cash flow performance also improved, with net cash flow from operations up 21% versus the same period of the prior year.

Looking ahead, Sophos is expected to report a rise in its bottom line of 137% in the next financial year, followed by further growth of 77% in the 2020 financial year. Despite such a strong growth rate, it trades on a price-to-earnings growth (PEG) ratio of just 0.9. This suggests that it could offer a wide margin of safety and that there could be significant upside potential on offer.

While there is scope for a downgrade to its outlook, demand for its products looks set to increase in future years. This tailwind could enable to it to provide improving financial performance over the long term.

Positive prospects

Also beginning to enjoy a positive tailwind is Rolls-Royce. As mentioned, the defence sector has experienced a number of difficulties in recent years. Cost cuts across the developed world have meant that demand for military products has fallen, and this has caused a number of companies across the industry to report disappointing returns.

Now though, the company has a sound strategy under its current management team. Cost cuts could help to make it more efficient and are expected to contribute to a rise in earnings of 40% in the next financial year. With the company trading on a PEG ratio of just 0.5, it seems to offer excellent value for money. That’s particularly the case while the FTSE 100 trades within 6% of its all-time high.

Looking ahead, Rolls-Royce could also become a more enticing income stock. It is due to increase dividends per share by around 28% over the next two years. While this puts it on a forward dividend yield of just 1.9%, it is expected to pay out just 36% of profit as a dividend. This suggests that it could afford a much higher payout – especially when its bottom line is forecast to rise rapidly. As such, its total return potential seems high.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Peter Stephens owns shares in Rolls-Royce. 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.

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.