Growth stocks are always something I want to add to my portfolio. They’re generating substantial and stable cash flow while moving upwards faster than other companies. Sometimes the growth’s sporadic, but these two companies aren’t showing any signs of slowing down.
Investing in growth stocks can be risky as they don’t tend to pay high dividends, if any. This is because the company wants to reinvest earnings to continue the growth drive. Therefore, the main way to make money through such stocks is to eventually sell them. If you’re willing to take the risk, investing in growth stocks at the right time can reap great rewards.
JD Sports (LSE: JD) is standing strong in the face of the challenges the UK retail market is facing. Its revenue and profit figures (pre-tax, operating, EBITDA) were all up in healthy double-digits in the latest year. Furthermore, JD’s average annual profit growth for the last five years has been 31%. This clearly demonstrates that the company’s continuing to grow and massively beats the industry average growth rate of 5.8%.
Due to the looming Brexit, there’s a lot of fear around UK stocks, especially retailers. But JD’s international focus is helping it towards further growth and investors know it isn’t solely relying on the UK market. JD has a price-to-earnings growth of just 1.6 which reassures me that there’s a degree of safety there.
The modest dividend yield of 0.28% doesn’t put me off either. The company’s simply focusing on maintaining its current rate of growth. JD’s continuous strong performance shows me that it can grow even through harsh economic cycles. This raises my confidence that it could be a brilliant long-term investment.
Fevertree Drinks (LSE: FEVR) has grown fast selling drinks mixers, gaining its current enviable reputation simply through its range of tonics. I believe that Fevertree should be a strong long-term investment based on its ability so far to triumph in a very volatile market. The zero debt on its balance sheet also gives me a very warm and fuzzy feeling about this investment. The financial flexibility no debt brings is an invaluable asset to have and I believe this has really helped the company to pour its earnings into growth.
Fevertree has an average annual growth rate of 49%, which it has maintained consistently throughout the past few years. The company’s net cash was up 64% last year as the company continued to storm ahead growth-wise. I think the biggest hurdle that some investors aren’t willing to jump is its current valuation. The stock has a forward-looking P/E of 40, suggesting that it’s still expensive. However, the price-to-earnings growth looks to be a healthy 1.1, which could help justify the price.
Having said this, shareholders who invested back in 2014 have seen huge rewards with the share price soaring over 1,300%. With the growth looking like it’s not going to grind to a halt (even if it isn’t quite as fast as that), I predict that investors could still see success at today’s price. I think Fevertree will make a healthy long-term investment as it continues to grow in future years.
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fional owns shares of JD Sports Fashion. 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.