Assume I’m a patient investor with 10 years to turn £100,000 into £1m. None of this is true, but I find this thought experiment useful while hunting for stocks with exceptional growth trajectories.
With that in mind, the stocks I need to target must have the ability to compound wealth at a rate exceeding 26% annually for 10 years. To mitigate the risks of these hyper-growth companies, I also need to focus on companies that are already sizeable, profitable and operate in industries that won’t be disrupted any time soon.
After a gruelling effort, here are the two stocks I believe have the potential to change my fortune.
Currency trading platform
It may be a hyper-competitive industry, but the market for trading foreign currencies has been around since the Babylonians. I’m willing to bet that the rise of technology and digital currencies such as Bitcoin could change the industry, but traders will still be around a century from now.
That’s what makes Alpha FX (LSE: AFX) part of this list. The company specialises in corporate hedging instruments for small and medium-sized enterprises, which means it helps companies tackle the volatility of different foreign exchange rates.
It turns out this is a massively lucrative segment. My Fool colleague Edward Sheldon figured out that the business is growing at a compound annual rate of 66%. At that rate, my £100k would turn into $1m in less than five years!
Of course, I can’t assume that this phenomenal rate is perpetual. Nonetheless, with its chunky margins and trillion-dollar industry potential, Alpha’s long-term average growth rate could certainly exceed my 26% baseline.
Enterprise software provider
Just like Alpha, the Kainos Group (LSE:KNOS) provides technology solutions tailored to enterprises. However, Kainos helps its clients manage processes and operations, rather than currency volatility.
The consulting group helps companies upgrade legacy information technology systems and integrate them with more efficient platforms like Workday’s enterprise management tools and cloud-based applications for finance and human resources.
Again, enterprise software solutions are sticky and massively profitable. The pre-tax profit margin last year was a healthy 15.4%, while there’s a backlog of orders on the book at the moment which indicates high demand for the team’s services. Net profit and revenue have both compounded at a rate higher than 26% since 2013.
Kainos isn’t growing as fast as Alpha, but its business model and industry are arguably more stable and less prone to volatility. That’s why it’s on my list of potential millionaire-makers.
Above-average and consistent earnings growth is a recipe for serious wealth creation. My initial search led me to these two growth stars, both of which, I believe, have the potential to make me a millionaire. However, I’m certain there are plenty of other stocks with similar growth rates that I could add to my portfolio. The search continues.
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VisheshR has no position in any of the shares mentioned. The Motley Fool UK has recommended Alpha FX and Kainos. 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.