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2 secret growth stocks to watch in 2018 and beyond

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Shares of Coats Group (LSE: COA) entered the stratosphere in Tuesday business following the release of brilliant full-year financials.

The business, a giant in the manufacture of industrial threads, was last dealing 11% higher on the day and within a whisker of January’s record tops of 90p per share. Coats’ market value has grown 60% in the past 12 months alone and there is plenty of scope for it to continue swelling.

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Today the FTSE 250 giant announced that, with revenues having risen 4% in 2017, to $1.51bn, adjusted operating profit had risen 10% to $174m.

While troubles remain over at Crafts — sales here slipped 10% last year — revenues at Coats’ core Industrial division (responsible for almost nine-tenths of group sales) continue to click through the gears. It noted that here, market share grabs supported sales at its Apparel & Footwear sub-division, while bolt-on acquisitions boosted sales at its Performance Materials operations. Thus total Industrial sales rose 6% year-on-year.

The bright result encouraged it to hike the dividend 15% to 1.44 US cents per share.

More to come?

Last year’s estimate-beating numbers were not the only cause for celebration, though, as the company upgraded its profits outlook for 2018.

Indeed, chief executive Rajiv Sharma advised that “adjusted operating profits are expected to be slightly ahead of previous management expectations,” the main man citing the impact of Coats’ so-called Connecting for Growth transformation programme as well as the contribution of US-based Patrick Yarn Mill, which it acquired in December.

And brilliant cash generation provides the firepower for it to keep organic investment and M&A action on the front burner. Last year adjusted free cash flow bumped 12% higher to $87m.

Underlining the manufacturer’s rosy profits prospects, City analysts are expecting earnings to rise 7% and 9% in 2018 and 2019 respectively, figures I reckon could be subject to chunky upgrades in the months ahead given exceptional sales momentum.

So while a forward P/E ratio of 16.9 times may sit outside widely-regarded value territory of 15 times or below, I reckon the threads play is a compelling growth share to consider today.

Business is booming

Investors searching for little-known growth gems may also want to check out Gooch & Housego (LSE: GHH) right now.

The photonics specialist is expected to chalk up earnings expansion of 14% in the year to September, and a 6% advance is forecast for fiscal 2019. This leaves the business trading on a pretty toppy prospective P/E ratio of 24.9 times.

However, ripping demand for the AIM company’s wares means that this expensive rating can be forgiven. Just this week Gooch & Housego announced that “we are experiencing exceptional demand for critical components used in microelectronic manufacturing,” a scenario which has driven its order book to record levels (to £89.7m as of the end of January, up 48.4% year-on-year).

Like Coats, Gooch & Housego has also seen its share price gallop over the past year, up 15% in the period. I fully expect it to continue flying as the firm upgrades capacity to meet rampant demand.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Gooch & Housego. 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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