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2 top growth stocks I’d buy right now

Churchill China (LSE: CHH), which released its half-year results today, and fellow small-cap XP Power (LSE: XPP) are two stocks that have delivered terrific earnings growth and share price gains. Investors in the former have enjoyed a five-year annualised total return of 23.9% and those in the latter have seen 19.5%. These returns have smashed the FTSE 100‘s 7.1%. Can they continue to deliver growth and are their shares good value right now?

Export-led growth

Churchill today reported a strong performance in the first six months of the year. Group revenue was up 6% and a rise in operating margin to 11.9% from 10.3% saw operating profit up by 22%. Earnings per share (EPS) climbed 24% and the board hiked the interim dividend 18%.

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Churchill is largely focused on selling its ceramic products into hospitality markets worldwide, where it enjoys a high level of repeat sales and long-term relationships with its customers. Revenue in this business increased 9% to £24.9m and now represents over 90% of total group revenue. In its shrinking retail business, revenue declined 19% to £2.4m, as anticipated.

Geographically, export revenues were up 17% and exports now represent 63% of total group takings. The company still has a relatively low market share outside the UK, giving it considerable scope to continue increasing its turnover. Add to the top-line growth a trend of improving profit margins (as a result of a rising proportion of sales of added-value product) and you’ve got very nice dynamics for continuing strong earnings and dividend growth.

The shares are up 1.2% on the day, as I’m writing, and at 1,012p, the company’s market cap is £110m. With its strong balance sheet (net cash and deposit balances of £13.7m at the period end) and excellent growth prospects, this AIM-listed stock is one I’d happily buy at its current rating of 16.8 times trailing 12-month EPS of 60.1p. There’s also a well-covered 25.9p dividend, giving a running yield of 2.6%.

Serving global blue-chips

XP Power develops and manufactures critical power control solutions for the electronics industry and has a global blue-chip customer base. It’s one of the larger companies in the FTSE SmallCap index, with a market value of close to £600m at a share price of 3,110p.

Net debt at the half-year-end was £46.5m when it released its results last month. This is relatively modest and came after a £33.4m acquisition in May that will further increase its addressable market. As it is, it’s growing strongly with new design wins entering their production phase.

First-half revenue increased 16%, underlying diluted EPS rose 24% and the board lifted the interim dividend 6%. At today’s share price, XP trades on 19 times trailing 12-month EPS of 163.4p and has a well-covered 80p dividend, giving a running yield that matches Churchill’s 2.6%.

With strong organic growth to come and earnings from the recent acquisition set to kick in, this is another stock I’d be happy to buy today.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended XP Power. 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.