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Investing in your 20s? These emerging growth candidates could help you retire earlier

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As I’m getting older I’m becoming far more wary of the risks of ‘jam tomorrow’ growth investments, but if you have the horizon for them, it can be a profitable strategy. Here are two that a younger me would have found very exciting.

The fatness epidemic

The first is OptiBiotix Health (LSE: OPTI), which develops products aimed at tackling the problems of obesity, high cholesterol and diabetes — all very big issues in the overfed developed world. The company’s bottom line is starting to turn upwards, and there have been some key developments that convince me that serious profit might not be too far away now.

On Thursday the company announced “an evaluation agreement with a global dairy company for its SweetBiotix calorie-free sweet fibres,” which could see them ending up in a range of products. We don’t know which company it is, but according to CEO Stephen O’Hara, it’s a well-known global brand.

This news comes a week after the firm’s annual results were released, for a year it says is part of a “transition from a development company into a commercial business.

OptiBiotix reported a profit-sharing agreement with Sacco among 10 commercial deals agreed in the period. Its SlimBiome product won a Food Matters award for Best Functional Ingredient for Health and Wellbeing, and FDA registration for LP-LDL and SlimBiome are paving the way for sales in the US.

There was even a small pre-tax profit, of £1.69m. And OptiBiotix looks to be in a comfortable financial position, having just raised £1.5m through a new equity offering.

My colleague G A Chester recently rated it a high-risk buy, and I agree with him.

Cash cow already

When I examined XLMedia (LSE: XLM) early last year, the shares had nearly three-bagged since 2014 and I saw the stock as a very tempting proposition. Since then the share price has put on a further 50%, as the company is firmly in that territory envied by many a growth startup — it’s in the transformation from growth prospect to dividend-paying cash cow.

The company, which bills itself as a provider of “digital performance marketing services,” saw its 2017 revenues grow by 33%, with adjusted EBITDA up 36% and earnings per share up 25%. And it had plenty of cash on the books and no debt.

The shares have actually fallen back a little since the end of 2017 as earnings forecasts have been pared back a little. But that’s a common phenomenon with growth stocks, and I reckon it still leaves the shares on a pretty attractive valuation.

We’re not looking at the super-low PEG ratios of recent years as EPS has been making annual double-digit percentage leaps, and the latter is expected to be flat this year. But a return to growth with 8% indicated for 2019 would put XLMedia on a P/E of a little under 15 — and that’s with dividends set to already yield 3.5% by then.

For a company in a growing market, with significant further growth potential, and already bring in pots of cash and paying decent dividends, I reckon that’s a bargain price. And $43.3m (£34.5m) in cash at year-end for a debt-free company with a market cap of £360m isn’t too shabby either.

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Alan Oscroft 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.