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These growth stars could still help you achieve financial independence

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Back in December, I made a bullish call on cellular material tech company Zotefoams (LSE: ZTE). Since then (and before today), shares in the small-cap had climbed a very encouraging 38%.

While this increase means that the firm now trades on a rather off-putting valuation of 31 times expected earnings for 2018, I still think the stock warrants attention from growth investors keen on achieving financial independence, especially after today’s positive interim update.

Strong order book

Group revenue climbed 12% to a record £37.9m in the six months to the end of June. At constant currency, this rise equated to a 17% improvement on the same period in 2017.

The above included a 4% increase in revenue from its Polyolefin Foams, thanks in part to the firm’s decision to increase capacity at its base in Kentucky, USA.

Even more impressive were sales figures relating to Zotefoams’s High-Performance Products. These jumped 82% over the period and now contribute 24% of total sales, compared to 15% a year ago. 

Collectively, this trading helped the company register a 64% jump in pre-tax profit to £4.6m.

Continuing the trend of consistent-if-modest dividend hikes, Zotefoams also announced a 3.1% increase to its interim payout this morning (to 1.97p per share). While the forecast 1.1% is hardly tempting, modest dividend increases are more preferable in my book to high yields that can’t be maintained.  

Ultimately, however, Zotefoams remains focused on becoming a far bigger beast. With three projects to expand capacity running to plan, CEO David Stirling stated that the company had commenced H2 with “a strong order book, a differentiated product portfolio and continued growth expectations across all business units“.

Returning to the valuation, it’s true that a lot of growth already appears priced in. Nevertheless, a P/E of 26 in 2019 — assuming expectations are met — looks far more palatable. This being the case, I wouldn’t blame growth hunters from keeping the firm on their watchlists.

Long-term hold? 

Also reporting half-year results this morning was actuator manufacturer and flow control company Rotork (LSE: ROR). Like Zotefoams, the £3bn cap’s shares have been on a roll, rising 52% over the last year and today’s positive numbers were — perhaps inevitably — also greeted with a drop in the stock price.

Revenue rose 14.8% to £331m over the six months to the end of June while pre-tax profit climbed 17.2% to £54.7m. Another reliable dividend-hiker, Rotork declared a 7.3% rise to its interim payout (2.2p per share). 

CEO Kevin Hostetler reflected that the company had witnessed “a continuation of the more favourable market trends” seen in Q4 of the previous financial year and had also received “several large orders” during Q1, contributing to a 13.3% rise in order intake over H1. Rotork expects “high single-digit” growth for the full-year and adjusted operating margins to be “slightly ahead” of those achieved in 2017.

Since the aforementioned orders was already known by the market, today’s fall smacks of profit-taking. That said, the announcement that an investment programme in areas such as service infrastructure and IT has been initiated might have also contributed, particularly as the amount of cash dedicated to this “will continue to increase through the year”.

Based on analyst projections, Rotork’s shares change hands on a punchy 28 times earnings following today’s fall. So long as your time horizon runs to years rather than weeks, I see no reason to jettison the stock as things stand.  

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Paul Summers 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.