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Two growth stocks I think could make you richer

Falling markets are presenting investors with a lot of buying opportunities but looking for stocks that are still rising can be the best strategy for spotting hidden gems. AB Dynamics (LSE:ABDP) is an advanced vehicle testing company that could grow significantly from its specialisation in self-driving cars. I mentioned it as a good momentum buy back in October and it has gained 11% since then, despite flailing market sentiment in the UK generally.

Big upgrades

Whenever a company boasts in its trading statement for the first six months of the year that results will be “significantly ahead of market expectations” as it did back in October, I think it’s worth taking a closer look. When H1 results were released it revealed revenue increased 51% and earnings-per-share increased 70%, so it didn’t disappoint.

Looking ahead, it is releasing several new products and told us it has strong orders through next year. It is expanding internationally and has indicated that there is growing demand for its vehicle-testing services. Factoring all of this in, I think it is a very exciting time to be holding this share.

But I’m taking a wait and see approach for now. My main reservation currently is that directors have been very busy selling shares recently. While management can’t be faulted for cashing in some profits, the sizes of the holdings are significant. It looks like eight directors in total have offloaded shares with some selling over 50% of their holdings. But Anthony Best (the AB in the company’s name) sold a small amount and still retains over 30% ownership of the company, which is encouraging.

Also it had a new CEO as of October which can signal a change in fortunes so I’d wait for confirmation that progress is continuing before buying.

Growing ahead of demand

Sopheon (LSE:SPE) is a computer software company that has also been thriving recently. It is up 15% since October on the back of a big upgrade in forecasts. It provides software that helps companies produce estimates, and subsequently savings, through lifecycle management.

The trouble with this company is that its revenue guidance makes it very difficult to value. We have to do a bit of puzzle-solving to get an approximate figure. Revenue for 2018 was forecast at $31m (despite being listed on AIM, it reports in dollars) but in its half-year results it was stated that “revenue visibility for the year [is] already at $27.2m”. However it has since stated that it had a record Q3 and that visibility is now above $30m with two new deals in chemicals and electronics. Since then it has released news of an additional contract with The Nature’s Bounty Co. This is a billion dollar health firm so presumably this could have pushed revenue over revised forecasts of $32.5m.

These constant upwards revisions leave a lot of room for speculation, so I would conjecture that revenue will be in the mid-30s. Its deals are large but infrequent, so it would be risky to assume that it will be higher. Regardless of the exact figure, this company is growing so quickly that the share price can’t keep up. With this in mind, I’d consider buying into this company.

Capital Gains

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Robert Faulkner has no position in any of the shares mentioned. The Motley Fool UK has recommended AB Dynamics. 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.