2 secret stocks expected to deliver super earnings growth

Spirent Communications (LSE: SPT) has seen its share value go gangbusters on Thursday following the release of brilliant full-year financial details.

The stock was last up 10% on the day and dealing at levels not seen since last July. I reckon there is plenty left in the tank too, for further share price advances.

Spirent — which supplies testing and performance analysis services to the communications sector — announced that, although revenues fell marginally in 2017 to $454.8m from $457.9m a year earlier, adjusted pre-tax profit leapt 34% over the period to $59.2m.

The small-cap noted that the profits jump of last year was delivered “by materially reducing costs and focusing on our core areas of differentiation,” and the rosy result, helped by strong cash generation (free cash flow more than doubled to $56.4m) encouraged it to shell out a maiden special dividend of 5 cents on top of an ordinary dividend of 4.08 cents.

Growth star

Now a quick disclaimer: while Spirent is likely to see earnings growth cool considerably in the near term — City consensus suggests only a fractional year-on-year improvement is set for 2018 as legacy headwinds continue — I am convinced that the communications colossus is in great shape to deliver brilliant bottom line progress over the long term.

Indeed, the number crunchers are predicting that earnings expansion will pick up the pace again with a 14% advance next year, helped by an anticipated rebound in demand for high-speed ethernet from the current period.

Demand for Spirent’s services is only likely to grow as communications providers look to deliver data connectivity that is quicker, has greater capacity and is more secure. And the company’s renewed focus on what it sees as key growth areas bodes well for future revenues, too. Revenues from Lifecycle Service Assurance and Application Security rose 10% and 20% respectively last year.

The tech star may change hands on an elevated P/E ratio of 22 times, but in my opinion Spirent’s strong position in a rapidly-growing marketplace makes it worthy of such a premium.

Fasten in. Listen up

Trifast (LSE: TRI) is another little-known stock with the capacity to deliver exceptional shareholder returns.

City analysts are expecting the fastenings manufacturer to deliver a 23% earnings rise in the year to March 2018, although profits growth is expected to slow thereafter with a 3% advance forecast for fiscal 2019.

Neither this predicted slowdown — nor a slightly-heady P/E multiple of 19.1 times for the upcoming year — would be enough to discourage me from investing, however.

Trifast’s progress is relentless and a slew of positive trading releases, including the strong third-quarter update unveiled last month, has seen brokers upgrading their profits forecasts with no little regularity.

The chances of yet more upward revisions are strong given the progress it is making across all its territories (sales in the emerging nations of Asia boomed 10.7% during April-September, for example) as well as the strength of key markets like the automotive industry. And what’s more, Trifast’s drive to build  its manufacturing and warehousing capacity across the globe bodes well for its ability to continue meeting the needs of the world’s biggest OEMs.

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Royston Wild has no position in any of the shares mentioned. 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.