Could you be tempted by a couple of volatile growth stocks with plenty of upside potential? I reckon I’ve found a couple, although they do come with some risk attached.
Just, in time
Retirement and equity release advisers Just Group (LSE: JUST) has crashed 17% this morning after announcing plans to raise money through a share placement and a debt offering. The news overshadowed today’s 2018 preliminary results which showed underlying operating profit climbing 31% to £315m in 2018, although there was disappointing news here as well, with adjusted operating profit down 5% to £210m.
Overall, Just reported an IFRS loss before tax for 2018 of £85.5m, against a £181.3m profit for 2017, “driven by changes to property assumptions in light of the economic and financial uncertainty caused by Brexit.”
Capital question
New business profits rose 44% to £244m due to strong sales growth and a jump in the new business margin from 9% to 11.2%. The group now has a solvency coverage ratio of 144%, but today announced an underwritten debt offering of at least £300m and an underwritten equity placing of 9.99% of existing share capital. This should strengthen its balance sheet amid changes to capital requirement rules.
CEO Rodney Cook pointed to a “year of contrast,” with growth in new business profits, stronger margins, and higher sales offset by uncertainty over the Prudential Regulation Authority’s consultation on equity release mortgages. Its guidance in December was less demanding than many feared, but Just still has to set aside more capital to protect against the risks.
The uncertainty forced Just to delay dividend payments, although that will now restart in the 2o19 financial year. Today, the £778m FTSE 250 group trades at just five times earnings with a PEG of 0.4. This is deep into bargain territory, too deep for some. Today’s news will continue to cast a shadow, but I still think this is an exciting opportunity.
IQE easing
AIM-listed IQE (LSE: IQE) has also had a bumpy time. Its stock peaked at 175p in December 2017 but today it trades at almost half that level, 87p. Yet it’s rallied 33% in the last month. Is it about to recover its Mojo?
The group, which calls itself “the global leader in the design and manufacture of advanced semiconductor wafer products,” has tempted investors looking for the next big domestic-based technology play. As my Foolish colleague G.A. Chester recently pointed out, demand for its chips could skyrocket.
Apple uses IQE’S materials, but this can be a mixed blessing as iPhone sales weaken, while investors may remember how Imagination Technologies crashed in 2017 after Apple said it would stop using its graphics.
Better times ahead
IQE’s 2018 results were disappointing as earnings slipped from £37m to £27.5m following supply chain issues, disruptions and one-off charges. However, it has a number of investment programmes reaching completion this year, and management has assured investors 2019 will be better. We’ll see.
Earnings are forecast to grow 118% this year, then another 42% in 2020. Manager will need to deliver on those with the stock trading at 26.1 times earnings, with a price-to-revenues ratio of 3.6. Like Just, I reckon IQE is an exciting buy. It depends on your attitude to risk, though.
