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Forget Sirius Minerals and Metro Bank! I think these hidden gems will provide far greater returns

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It’s not always easy being an investor. Shares fall, companies release bad news, unexpected events happen. Just ask shareholders in Sirius Minerals and Metro Bank. Both have had a torrid 2019, but for investors willing to take a long-term view, and to continuously learn and improve/hone their skills, there are lots of quality companies that have huge potential.

Reaching for growth

One such company is Hollywood Bowl (LSE: BOWL), I believe. Just this week, it said it expects profit growth to be over 10% in the year to 30 September. It means full-year profit will exceed market expectations and that may result in higher payments to shareholders — both very positive pieces of news for the share price.

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The 10-pin bowling centre operator said that all revenue streams contributed to the improving performance, which I think bodes well for the future. Hollywood Bowl also said product innovations, new bowling alley openings, refurbishments and a rebrand had paid off. It’s reassuring for investors that management has taken the right actions to achieve growth. 

The shares have a P/E of around 18, so high, but not excessively so for the rate of growth the company is seeing and investors get rewarded with a modest dividend as well. The yield is currently around 2.8% but with potential to grow as profits climb.

Solid dependable results

Another company that has been releasing positive news is electrical distributor Electrocomponents (LSE: ECM). It said earlier this week that first-half like-for-like revenue grew 5% on the back of a strong performance in its industrial division.

The latest positive news follows on from full-year results for the period ending 31 March 2019 which saw operating profit rise 16.5% and the full-year dividend jump up 11.7%.

The distributor is part of a market estimated to be worth £400bn and it’s one of the few truly global players with dominant market share. Growing that market share is something management is focusing on, which should help accelerate further growth in the future.

Looking at the five-year record of Electrocomponents, it’s clear management has been doing a great job. Revenue has risen from £1.27bn in 2015 to £1.88bn in 2019. Operating profit has near enough doubled over the same period.

Given this performance and future potential, I don’t think the shares are expensive trading on a P/E of under 17.

Going cheap

The last of the trio of high-performing companies I like is financial and administration services outsourcer Equiniti (LSE: EQN). Its shares look very cheap to me on a P/E of only around 11, despite a huge jump in profits at the group.

The outsourcer reported profit before tax of £11.6m for the six months ended 30 June, storming 222% higher than the same period last year, as revenue climbed 8% higher to £275.1m.

Other highlights from the results were: the double-digit growth from the US division, new client wins and strong customer retention. Alongside the positives of the business model which include recurring revenues and attractive margins I think there’s a strong platform for future growth at the group. 

The FTSE 250 company’s results followed a trading update earlier in the year which also contained positive news, showing clear momentum. That update stated in the outlook that the group’s activities are largely protected from wider economic conditions, so it kept its expectations for 2019 unchanged.

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And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

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Andy Ross has no position in any of the shares mentioned. The Motley Fool UK owns shares of Equiniti. The Motley Fool UK has recommended Hollywood Bowl. 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.

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