The wave of new companies coming to the market continues apace. The latest new-stock-on-the-UK-block is re-commerce business musicMagpie. Trading of its shares began today on the (junior) AIM market of the London Stock Exchange. As someone who only very recently used its services and loves small-cap stocks, I’m keen to look into the investment case for the company. Should I buy MMAG shares today?

What is musicMagpie?

Founded in 2007, musicMagpie is a dream for anyone who likes to declutter. It specialises in “refurbished consumer technology“. It takes the stuff we no longer want — including smartphones, video games consoles, CDs and DVDs — and then sells it on. Previous owners get some fuss-free cash for their unwanted things and the company pockets the (often sizeable) difference between what it pays to acquire them and what it goes on to sell them for.

Thanks to the multiple lockdowns in the UK, decluttering has become extremely popular. This has proven a boon to firms such as musicMagpie. I can see this momentum continuing for a while yet, particularly if concerns over employment force people to find ways of raising cash quickly. 

So, what’s to like?

Aside from the current demand and simple business model, one thing I like about musicMagpie is that it’s not solely dependent on the UK for earnings. Back in 2014, the company expanded into the US with its Decluttr brand. This geographical diversification could help the company to continue growing at a fair clip going forward. It should also help investors sleep at night. 

A second positive is that musicMagpie has solid environmental credentials. Indeed, it recently received the LSE’s Green Economy Mark. This seal of approval is handed out to businesses that make 50% or more of their total revenue from green-economy-related products and services. This could make the MMAG shares popular, especially among younger investors.

As well as the above, I’m also particularly drawn to the company’s phone rental strategy. This may be enticing for those who 1) don’t wish to shell out hundreds of pounds for a smartphone and 2) regularly want to upgrade.

Last, musicMagpie is already profitable. This makes it a world away from a typical blue-sky, glitzy tech stock. 

Any negatives?

Despite the above, I think there are a few risks to be aware of. Perhaps the most concerning is the level of competition musicMagpie faces and its lack of ‘economic moat’. 

Reselling is hardly a new concept. Rivals in the UK include WeBuyBooks, Ziffit and CeX. On top of this, there are US giants Amazon and eBay. If declutterers have time, they have a good chance of making more money by selling things individually (although, ironically, their competition would be musicMagpie). 

On a more general level, trying to make money from an IPO is tricky. For every stock that does well (AJ Bell), there are many that don’t (Aston Martin, Deliveroo). Factor in the greater volatility seen in the small-cap world and early owners could be in for an ‘interesting’ ride.

My verdict on MMAG shares

At face value, MMAG shares look very interesting. However, that last concern is the most problematic for me. As such, I’m going to sit back and watch the market’s reaction to musicMagpie’s listing before I consider taking a stake. If I miss out on some early gains, so be it.

The post Should I buy musicMagpie (MMAG) shares? appeared first on The Twelfth Magpie.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended eBay and recommends the following options: short June 2021 $65 calls on eBay, long January 2022 $1920 calls on Amazon, and short January 2022 $1940 calls on Amazon. 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.

Today, I’m looking at two solid growth stocks that should contribute to this ongoing rally. As luck would have it, both also reported to the market this morning. 

FTSE 250 flyer

As stock market sentiment improves, online investment platform AJ Bell (LSE: AJB) has welcomed yet more customers over the final three months of 2020. The number of people using its services moved 6% higher in the quarter, bringing the total to a little over 312,000 — a 30% rise over 2020.

Total net inflows also jumped 100% to £1.6bn and total assets under administration climbed 11% in the quarter to £65.2bn. 

As good as these numbers are, shares in AJ Bell were pretty much flat in early trading. This would suggest the market had already priced in today’s news. That’s not altogether surprising when you consider the stock has already climbed nearly 90% since last March’s market crash. The fact AJB was trading at 50 times forecast earnings before today’s statement may also have deterred would-be investors. 

Is that valuation too rich? Possibly. If 2021 proves to be tougher than expected, it’s likely highly-priced UK companies will be hit the hardest. 

Then again, there’s little doubt that AJ Bell is a quality business. It consistently generates great returns on capital and sky-high operating margins. It’s also got a shedload of cash on its balance sheet. Valued at less than £2bn, the company has a lot more room to grow than its near-£8bn-cap FTSE 100 peer Hargreaves Lansdown.

As things stand, I’m more than happy to continue holding and will look to add on any weakness. 

Resilient earnings

Another share supporting the FTSE 250’s recovery over recent months has been pet product retailer and veterinary services provider Pets At Home (LSE: PETS). Like AJ Bell, I suspect the shares will continue to reward investors long after the coronavirus storm has passed.

Today’s Q3 trading update — covering the 12 weeks to the end of 2020 — showed total revenue had grown 18% to £302m. Based on this performance, Pets maintained its previous guidance and expects to generate “at least £77m” in pre-tax profit for the full financial year.

And the shares? Like AJ Bell, Pets at Home has been in great form. Those investing at the depths of the coronavirus crash would have doubled their money. The question is whether there’s more to come in 2021. 

Naturally, nothing rises in a straight line and there may be some profit-taking in the weeks ahead. An undeniably punchy valuation of 32 times forecast earnings may also lead some growth-focused investors to refrain from loading up on the stock for now. 

Notwithstanding this, I struggle to see why the share price won’t continue to rise over time. After all, spending on furry companions tends to remain resilient, even in tough economic times. What’s more, the boom in pet ownership over the pandemic should mean the FTSE 250 member continues to attract and retain customers through its membership and subscription services.

Factor in the possible rollout of new stores inside the M25 and further gains in 2021 certainly aren’t out of the question.

The post Stock market rally! I think these FTSE 250 growth shares will continue rising in 2021 appeared first on The Twelfth Magpie.

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Paul Summers owns shares of AJB. 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.

Will this recovery prove short-lived? No one can say with any certainty. What we can do, however, is prepare ourselves for all eventualities. This should include keeping a list of quality stocks to buy if things head south again. Here are two that feature on my own.  

FTSE 250 star

Hull-based meat supplier Cranswick (LSE: CWK) fell along with everything else last month as investors made a ‘dash for cash’ and sold anything they could. Since then, the share price has recovered to pretty much where it was in February.

At least some of the rebound is likely down to investors realising that the company is a probable beneficiary from the UK lockdown since it supplies food products to major supermarkets. While this boost may prove temporary, the company is also seeing great demand as an exporter due to the African swine fever that has decimated pig herds in China.

Aside from these growth catalysts, Cranswick is a well-run company. Operating margins may be slim, but the balance sheet looks fine and a record of consistently hiking its dividend smacks of management’s ongoing confidence in the business.

The only issue I have with the company at the moment is its valuation.

The shares trade on 23 times earnings. That’s not cheap relative to the market, nor Cranswick’s own average valuation over the last five years (20 times earnings).

As such, the FTSE 250 member stays on the watchlist for now. Should we see a resumption of market volatility as a result of a dreaded ‘second wave’, I’d certainly be interested in buying a stake.

Long-term growth

Also falling significantly in March was investment platform provider AJ Bell (LSE: AJB). Like Cranswick however, it too has recovered strongly, particularly following last week’s encouraging trading update.

Customer numbers rose at a record rate over the three months to the end of March with the company adding almost 21,000 people to its books. This brought the total number using its platform at the end of the period to just over 248,000.

For me, this is yet more evidence that AJ Bell could prove a winner for growth-focused investors. As well as tapping into the long-term trend of more people saving for their retirement, the company boasts an excellent balance sheet and a committed CEO in founder (and significant shareholder) Andy Bell. At £1.5bn, its market cap is also less than a quarter the size of FTSE 100 member Hargreaves Lansdown.

Once again, the only real negative I see in the investment case is the valuation.

A price-to-earnings (P/E) ratio of 44 is positively vertigo-inducing in the current climate, especially as its aforementioned rival trades on ‘just’ 26 times earnings. The latter also generates even higher returns on capital employed — something Terry Smith deems crucial when screening for potential investments.

I’ll pay up for quality, but I’ll try not to overpay when doing so. I’ll look to add to my current holding (purchased shortly after listing) if May brings more stock market misery.

The post 2 FTSE 250 growth stocks I’d buy if markets crash again in May appeared first on The Twelfth Magpie.

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Paul Summers owns shares of AJ Bell PLC. 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.

Brexit is on

Arguably the biggest consequence of the election outcome is that the Conservative Government can now pursue it’s campaign pledge to ‘Get Brexit Done’ and leave the EU by the end of January.

After so much uncertainty for so long, this outcome has seen sterling soar to its highest level against the dollar in 18 months — good news for UK-focused companies, hence why the FTSE 250 is showing big gains this morning. The rapid rise also has implications for the FTSE 100 given that the vast majority of companies in the top tier generate most of their earnings overseas. The index is still up strongly, but the gains are less pronounced.

Big winners

Another development is that those companies on Jeremy Cobyn’s wishlist for nationalisation are now safe. These include battered postal service Royal Mail, energy provider Centrica and communications giant BT. No surprise then that these are some of the biggest winners today.

Of course, this relief rally does not necessarily mean that these companies are suddenly worthy of your cash. Royal Mail must address declining letter volumes; Centrica must deal with the rise of nimbler competitors; BT still has its pension deficit. A rising tide lifts all boats temporarily, even those with a few holes. 

Other winners worthy of mention include housebuilders such as Persimmon and financial heavyweights such as Lloyds Bank and Barclays, perhaps due to the likelihood of a speedy Budget. In the FTSE 250, investment platform AJ Bell was among the top risers, presumably because people will now be more willing to put their money to work in the stock market.

So it’s safe to invest? 

Certainty on Brexit will be welcomed by businesses, even if departing from the EU isn’t what many wanted. From this point of view, Johnson’s win does make life easier for market participants in the short term.

Here at the Fool UK, however, we’re in it for the long term. By this, I mean that we recognise that the political world is in a constant state of flux and trying to predict anything is asking for trouble. The 2016 referendum result surprised many. Few believed Donald Trump would win.

Boris Johnson’s victory will be cheered by those in the City for now, but that’s not to say that the positive momentum we’re witnessing today will continue. One prediction I can reliably make is that investors always find something to worry about.

It’s important to recognise, for example, that our actual departure from the EU is merely the first stage of Brexit and that there are many more hurdles ahead for Boris Johnson to negotiate, all within an extremely tight deadline. A no-deal EU departure still can’t be ruled out. The outlook is clearer but no less difficult.

For this reason, I think it’s best to focus on what research has consistently shown, namely that equities have provided the best returns over time; more so than bonds, property or commodities like gold. 

Last night’s result will generate cheers and tears. For Fools, however, the script is the same: buy a diversified bunch of great companies at reasonable prices and learn to sit on your hands. 

The post Boris Johnson wins a massive majority. Is it now safe to invest? appeared first on The Twelfth Magpie.

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Paul Summers owns shares of AJ Bell PLC. The Motley Fool UK has recommended Lloyds Banking Group. 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.

AJ Bell

Investment platform AJ Bell (LSE: AJB) attracted plenty of attention when floated almost exactly a year ago, on 7 December 2018. It jumped 25% on the day and was up 60% within six months, only to retreat when key shareholder Invesco banked some of its profits. 

The AJ Bell share price is down 14% over the past six months, and dropped 5% this morning, despite posting record profits in the first full year since its IPO. Yet today’s figures showed revenues up a healthy 17% to £104.9m, with profit before tax at 33% to £37.7m, fractionally above expectations.

The £1.59bn group attracted another 34,154 retail customers, increasing the total 17% to 232,066, with a 95.4% retention rate. Assets under administration rose 13% to £52.3bn.

Chief executive Andy Bell said the group’s strong balance sheet allowed it to increase the total dividend for the year 31% to 4.83p, adding that “structural growth drivers for investment platforms in the UK remain strong”.

I’m a bit mystified by the grumpy stock market response as these results look pretty solid to me. Maybe it’s because these numbers were flagged up in October’s year-end trading update, and investors wanted that little bit more?

The AJ Bell dividend yield is low at just 0.83%, so this is a growth stock rather than an income play. It still has a long way to go to catch up with FTSE 100 listed Hargreaves Lansdown. However, as a smaller operator its growth prospects may be brighter than its £8.57bn rival.

Quilter

Or should you consider FTSE 250-listed Quilter (LSE: QLT), the business formerly known as Old Mutual Wealth Management?

Its IPO in June 2018 didn’t go as well as AJ Bell’s, the stock falling sharply soon after, but the Quilter share price has recovered from that initial disappointment and is up 18% measured over 12 months. It is now the bigger operation, with a market cap of £2.84bn, and has a greater focus on offering personal financial advice, rather than fighting it out with the big investment platforms for mass-market execution-only business.

Last year, Quilter reported a 4% decline in assets under management, but October’s update showed a 9% rise to £118.7bn this year. That was despite a 12% year-on-year drop in third-quarter gross sales to £3bn, while it also suffered net client cash outflows, mostly due to previously notified investment manager departures within Quilter Cheviot.

The group trades at 14.4 times forward earnings, but those earnings are forecast to drop 20% this year, and rise just 2% in what could be a difficult 2020 for markets generally. Quilter offers a higher yield than AJ Bell at 3.2%, covered twice.

Both these stocks are a good way to play rising demand for pensions and investments management. However, their progress may hang on how stock markets perform over the months and years ahead

The post £2k to invest? I think these 2 FTSE 250 growth stocks are worth a look appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. 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.

Is this bad publicity enough to make its FTSE 250 rival AJ Bell (LSE: AJB) a better buy? Today’s year-end trading update from the latter certainly won’t damage its investment case.

Customer numbers up

The number of customers served by the business rose a very healthy 17% to just over 232,000 in the year to the end of September, with a little under 35,000 more people using its platform service. 

Total assets under administration came in at £52.3bn — 13% higher than a year earlier. As the company stated, this was also far better than the 2% reduction achieved by FTSE All Share — the index comprising the FTSE 100, FTSE 250, and FTSE Small Cap indices. Platform assets under administration rose 16% to £44.9bn, with underlying inflows of £5.4bn. 

CEO Andy Bell — who still owns a sizeable chunk of the company — reflected that today’s numbers helped to show just how resilient the business model was, adding that savers looked for “established, trustworthy businesses” in the industry during times of political unrest. 

So, which one’s a better buy?

It’s a tough one. Both companies are ideally placed to benefit from the growing numbers of people wanting to have more control over their money. Both also generate sky-high returns on the capital they employ to grow their businesses.

And while Hargreaves has long been praised for its customer service, I’ve not come across evidence to say AJ Bell is lacking in this area either. Anecdotally, as a client of both, I’ve had no complaints. 

There are a few ways of separating the companies. Although dividends are unlikely to be of much concern to investors in either business, Hargreaves yields a forecast 2.7%, according to analyst estimates.

Befitting its growth credentials, AJ Bell yields just 1.6%. As you would expect from its top-tier status, Hargreaves is also the clear market leader (it had 1.26m investors on its books and £101.8bn in assets under administration by the end of last month).

On the other hand, AJ Bell’s smaller size arguably gives it more potential to grow. It also benefits from having no association with the aformentioned Woodford saga. Hargreaves, by contrast, could be subject to legal action from investors if it can be proven the broker was aware of issues surrounding the Equity Income Fund while continuing to back it.

Regardless of all this, what’s clear is the valuations of both companies remain high. Before markets opened this morning, Bell’s stock changed hands on 40 times forecast earnings (which might go some way to explaining why the share price isn’t sprinting away this morning). Following a period of weakness, Hargreaves has a lower but still-pretty-demanding forward price-to-earnings (P/E) ratio of 30.

Personally, I think both companies are worthy of investment, but only at the right price. For now, I’m content to do nothing and simply stick with my (small) holding in AJ Bell.

Should markets head south in 2020 as a result of fears surrounding global growth, Brexit, the US/China trade war, or some ‘unknown unknown’, that’s the time I’ll consider acting. 

The post After Woodford, is this FTSE 250 growth stock a better buy than its FTSE 100 rival? appeared first on The Twelfth Magpie.

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• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Paul Summers owns shares of AJ Bell PLC. The Motley Fool UK has recommended Hargreaves Lansdown. 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.

Those buying a slice of the pie back then would have been sitting on a near-100% gain at yesterday’s closing price. Considering the abject failure of some recent IPOs — luxury car maker Aston Martin springs to mind — that’s a superb result over such a short time.

Today’s trading update for the three months to the end of June will likely generate even more interest in the stock.

Total assets under administration rose 6% to £50.7bn over the period and 13% in the last 12 months, easily outperforming the FTSE All-Share index. The total number of customers served by AJ Bell also increased 5% in the quarter to 224,644, with 94% using the company’s platform. 

For the long term

Given the tone of today’s statement, it’s not surprising that the shares have responded positively — climbing almost 5% in value as I type. Unfortunately, this makes the company’s valuation even less palatable than it was before. 

Before markets opened this morning, AJ Bell’s stock was trading at an eye-watering 58 times forecast earnings. Considering the recent volatility in popular stocks previously trading on similar valuations (ASOS, Fevertree), it’s understandable if many are put off building a position at the current time.

Pricey as the shares undoubtedly are, it’s hard to disagree with CEO Andy Bell’s belief that “people will need to save more via their pensions and ISA for the long term” when it’s considered that life expectancy is likely to continue rising and retirees are becoming increasingly active in their golden years. This is why I’d be far more willing to pay up for a company operating in this area over, say, an online retailer whose customers will switch to a rival in the blink of an eye.

With peer Hargreaves Lansdown boasting a market-cap of £10bn, there’s arguably plenty of room left for AJ Bell (£1.8bn) to grow. 

“A good start”

Another company I think has great long-term prospects is identity data specialist GB Group (LSE: GBG).

Like AJ Bell, shares have been in great form recently, rising by a third since the beginning of 2019 on account of the company trading above market expectations. Like AJ Bell, GB also provided an update on trading this morning. 

The £1.1bn-cap reflected that it had made “a good start” to its new financial year with revenue and profit in keeping with management predictions. In addition to securing a number of new clients over the period (including struggling bookie William Hill) GB also announced it had managed to pay down £10m of debt and make “good progress” with integrating its recent acquisitions (IDology and VIX Vertify).

GB’s shares traded at 34 times earnings before markets opened. While not as highly-valued as AJ Bell, that’s still very expensive. As you might expect from such a stock, there’s very little in the way of dividends (0.6% yield).

However, considering the huge opportunity available to GB as more organisations require support to help tackle fraud and comply with regulations, I’m not surprised by the recent interest from investors.

Those with many years in the stock market ahead of them will surely do well if management is able to continue successfully executing its growth strategy. 

The post I still think this FTSE 250 growth stock could be a great long-term buy appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
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Paul Summers owns shares in AJ Bell. The Motley Fool UK has recommended Hargreaves Lansdown. 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.

Ringing a Bell

Investment platform AJ Bell (LSE: AJB) attracted plenty of attention when it announced plans to float 35% of its shares last autumn, and rightly so given subsequent strong performance, which has seen its stock rise 60% so far in 2019, against around 9% for the index as a whole.

Roland Head even suggested AJ Bell could be the next Hargreaves Lansdown, and who wouldn’t want to get in at the ground level if that was the case? Although he also noted that AJ Bell’s operating profit margins of 31.5% trailed Hargreaves at 65%, so it has some way to go.

Brexit bother

The AJ Bell share price fell back in June when Invesco dumped its entire 9.3% stake for £144.4m, although this mostly looked like profit-taking as the US fund group retains a 16.1% holding.

Brexit hangs over every UK-focused stock and this one is no different, as economic and political uncertainty cut dealing activity by 14%. However, it still posted 17% revenue growth to £50.1m in the six months to 31 March, with profit before tax of 27% to £17.7m, and margins creeping up 2.9 points to 35.3%.

Bit pricey

Customer numbers rose 9% while the retention rate is now 95.3%, up from 95.1% in the previous financial year. As a journalist, I see that AJ Bell is making a big push to raise its profile, with investment director Russ Mould popping up on TV and being very helpful to people like me.

Now to the inevitable. It isn’t cheap, trading at around 50 times earnings. Then again, Hargreaves is never cheap either. AJ Bell stock is risky at this price, especially if we get market volatility in the second half of the year. It is still tempting, though.

Out of the bag

The Softcat (LSE: SCT) share price has also been baring its teeth in 2019, rising 67% to 964p at time of writing as the cybersecurity business continues its strong growth record. The group is in the right sector for growth, as online fraud continues to grow exponentially, leading to a never-ending arms race between cyber cops and robbers.

Rupert Hargreaves says the global cyber security market is expected to double by 2024, and Softcat’s track record suggests it can double with it.

On the up

The group’s latest trading update said the company continues to perform well and full-year results should now be slightly ahead of previous expectations. Half-year results to 31 January showed revenues growing at pace, up 21.1% to £434m while operating profit rose 40.4% to £33.9m.

Customer numbers and profit per customer are both climbing and the group remains debt free with a cash balance of £52.8m.

Strong growth in the Softcat share price means the £1.9bn company isn’t cheap, trading at 29 times forward earnings. It yields just 1.3% but management seems progressive, recently hiking the interim dividend 36%.

My biggest concern is that both AJ Bell and Softcat have created strong investor expectations and could take a knock if they fail to match up. Right now, though, the signs look good.

The post These 2 FTSE 250 stocks are thrashing the market and I’d happily invest £1,000 in each appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. 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.

Investment platform AJ Bell (LSE: AJB) floated on the London Stock Exchange in December 2018, since when its shares have rocketed higher. The group now has a market cap of £1.7bn and is a member of the FTSE 250.

The firm’s half-year results were published on Thursday and gave us some insight into why the shares are so highly rated.

Revenue for the six months to 31 March rose by 17% to £50.1m, compared to the same period last year. Pre-tax profit for the period climbed 27% to £17.7m, leaving the group with a pre-tax profit of £32.1m for the last 12 months.

If you’re thinking that sounds like a small profit figure for a company valued at £1.7bn, then I’d agree. But I can see some reasons why AJ Bell should continue to command a high valuation.

The next Hargreaves Lansdown?

AJ Bell is very profitable, and it’s growing fast. There’s also a third attraction — investors are hoping the firm will replicate the success of its larger rival Hargreaves Lansdown, whose share price has risen by 1,077% since its flotation in 2007.

Here’s how the two companies compare on some key metrics at the time of writing:

You can see that AJ Bell has roughly half the assets under administration, but its market value is only 16% that of Hargreaves.

The main reason for this is that AJ Bell is much less profitable — at the moment. My calculations suggest that AJ Bell’s operating margin and return on equity are about half those of Hargreaves.

However, its operating margin has risen from 31.5% to 33% in the last six months alone. If the group can continue to expand, then I’d expect economies of scale to lift this margin even higher.

Time to buy? AJ Bell shares now trade on 60 times 2019 forecast earnings, compared to a multiple of 43 times earnings for Hargreaves.

Although I expect AJ Bell to continue growing, I think that’s quite expensive. At this level I’d continue to hold, but I’d wait for a better opportunity to buy.

I really like this business

One business I’ve rated highly since its flotation in 2016 is bowling alley operator Hollywood Bowl (LSE: BOWL). The firm’s shares have gained 35% since 2016, compared to a gain of 6% for the FTSE 100.

Sales have risen by 20% since 2016 as the group has invested in new locations and revamped existing centres. Figures released on Thursday confirmed that growth remains strong.

Like-for-like sales rose by 4.4% during the six months to 31 March, while average profit from each centre rose by 4.7% during the period. These figures suggest to me that costs are under control and that customer spending remains strong.

Keep buying?

After a strong performance over the last six months, the shares now trade on about 17 times 2019 forecast earnings, with a 3.3% dividend yield.

I think the stock could still be worth buying at this level. Although it’s not as cheap as it was, this business is highly profitable and should profit from growing consumer demand for experience-led activities.

The post These rampant growth stocks are crushing the FTSE 100 appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown and 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.

Thing is, that level of freedom — a.k.a. financial independence — could be achieved by many of us. We either don’t know it or opt not to believe it. 

It requires sacrifices, of course. That daily coffee, expensive holiday, brand new TV… the more you spend, the less you can invest.

To reach financial independence quickly, however, you also need to pick stocks delivering high levels of growth. Here are some examples I like. 

High-growth stars

Keystone Law (LSE: KEYS) has made many friends since coming to the market. The legal company’s share price is now well over 150% higher than back in November 2017.

With a market cap of just £150m, I think there’s room for it to go even higher. 

Back in January, the company announced that it had “continued to trade strongly” in H2 and that it was likely that profits would be “comfortably ahead of current market expectations”.

Confirmation of this is expected on 8 May. Regardless of how the market reacts in the short term (some profit-taking might ensue), I think this is one company that should definitely be on growth-focused Fools’ radars.

Ongoing investment in its infrastructure and ability to attract new lawyers and clients should allow it to continue grabbing share from other mid-market law firms going forwards. 

My next pick is robotic process automation specialist Blue Prism (LSE: PRSM) – a company I bought a stake in not long after it listed.

It’s clear that the AIM-listed company’s software solutions — which help perform boring, repetitive tasks previously undertaken by a human (freeing the latter to do something more worthwhile) — are proving exceedingly popular. Revenue was £55.2m in FY18 — up 125%. 

But it’s not just about the amount of time that companies are able to save. Blue Prism’s ‘robots’ never get sick, never need holidays and, let’s be honest, never complain. 

With firms such as Coca Cola and Lloyds Bank already reaping the benefits of using its services, I continue to think this company will thrive.

Investment platform AJ Bell (LSE: AJB) is my final pick of stocks that I think will go from strength to strength.

The Salford-based business is one of the few IPO success stories in recent times with shares now trading for almost double the price they were back in December.

With interest rates on savings likely to remain low, it’s unsurprising that AJ Bell has more people signing up to its services and investing their money to generate better returns.

Total customer numbers increased 5% (to almost 215,000) in the three months to the end of March. Total assets under administration also climbed 8% to £47.7bn. 

Interim results are due next month with the company predicting its financial performance will be “slightly ahead of current market expectations”.

Warning!

Nothing is guaranteed in investing. That’s why it’s vital to mention that all of the above trade on lofty valuations, making them arguably more risky to hold given that high expectations are easily dashed.

Keystone and AJ Bell trade on 40 and 58 times earnings respectively. Blue Prism doesn’t make a profit but is still valued at £1.5bn.

So, while I rate all three (and own stock in one), that’s not to say I wouldn’t prefer to wait for another general market wobble before buying.

The post Dreaming of financial independence? I think these 3 growth stocks are just getting started appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Blue Prism. 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.