In contrast, buy-to-let could experience further tax changes, while housing affordability may remain challenging for first-time buyers. As such, now could be the right time to buy the defence stock in my opinion alongside another industrial company which released an encouraging update on Wednesday.

Consistent performance

The stock in question is technical products and services specialist Diploma (LSE: DPLM). Its first quarter trading update showed that it has been able to trade in line with expectations. Revenue in the period increased by 9%, while its operating margin was as per expectations.

The company’s Life Sciences sector delivered sales growth of 4%, also recording encouraging growth across several revenue streams. Its Seals segment reported 2% sales growth which was driven by strong trading in its international business. Its Industrial OEM (original equipment manufacturer) business was hit by delays in deliveries, although demand remained robust during the quarter. In its Controls segment, revenue increased by 24% as a result of previous acquisitions.

With Diploma having recorded five successive years of earnings growth, it appears to offer a robust financial outlook. It is expected to deliver a 9% rise in net profit in the current year, and this could help to improve investor sentiment. With the company also reporting a change in CEO alongside its trading update, it could record improving financial performance over the long term.

Low valuation

Also offering improving financial prospects is BAE. The company is expected to report a rise in earnings of 9% in the current financial year. Since its shares have fallen by 15% in the last year, they now trade on a price-to-earnings (P/E) ratio of around 10.8. This suggests that they could offer a wide margin of safety and may be able to deliver improving performance over the long run.

Of course, there are risks facing the company. Notably, there is still geopolitical uncertainty regarding one of its key customers, Saudi Arabia. As well as this, the prospects for the world economy continue to be uncertain, with the potential for a full-scale trade war having the capacity to hurt the company’s financial outlook. And, following US mid-term elections, defence budgets may not rise as quickly as had been expected by the market.

Despite these risks, BAE appears to offer growth potential as defence budgets across a number of major economies are forecast to rise over the medium term. Certainly, further share price volatility could be ahead. But at a time when interest rates in the UK are expected to rise and tax changes are reducing the appeal of buy-to-let properties, buying a slice of the FTSE 100 defence stock could prove to be a sound long-term move.

The post Forget buy-to-let! I’d rather invest in the BAE share price today appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of BAE Systems. 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.

Some firms would have just accepted the situation, but to its credit, the management team decided to take bold action instead. The directors fired up a new acquisition programme aimed at diversifying into more attractive sectors, and the company sold 10 of its existing businesses over three years. At the beginning of this century, it had a war chest of cash from the sales to fund future acquisitions and growth initiatives.

Expansion overseas

The transformation of the firm’s activities saw it move from being a mainly UK-focused operation to an international one. Now, around 25% of revenue comes from the UK and the rest from North America and mainland Europe, earned from distributing technical products to the Life Sciences, Seals and Controls industries. These include consumables, instrumentation, environmental analysers, containment enclosures and emissions monitoring systems.

The firm aims to make itself an indispensable link in its customers’ supply chains by focusing on supplying “essential products and services,” which customer-organisations buy from their operating, rather than their capital, budgets. Diploma reckons the tactic provides recurring income and stable revenue growth, and it’s hard to argue with the firm’s record of trading. Over the past six years, the compound annual growth rate (CAGR) for revenue is almost 12%, net profit around 9%, normalised earnings per share around 9.5%, and the dividend almost 10%. Meanwhile, the operating margin is running just over 16% and the return on capital is a little over 25%. I think these numbers suggest a quality operation and investors have been rewarded with an increase in the share price over the period close to 270%. Wow!

A better business

I think Diploma is more than just your average distributor. The firm reckons its businesses offer “a blend of high-quality customer service, deep technical support and value-adding activities.”  The aim is to deliver “essential solutions, not just products,” enabling the company to build strong long-term relationships with its customers and suppliers, “which support attractive and sustainable margins.”

I think the directors could have been looking across the pond for inspiration because they “encourage” an entrepreneurial culture in the firm’s individual business units by operating a decentralised management structure. That’s just how well known investor Warren Buffett runs his company Berkshire Hathaway in the US. Diploma argues that the arrangement allows decisions to be made close to the customer so that the businesses are “agile and responsive to changes in the market and the competitive environment.”

In today’s full-year report, the company presented another good set of figures. Year-on-year revenue increased 7%, free cash flow moved 9% higher and adjusted earnings per share rose by 13%. The directors pushed up the total dividend for the year by 11% reflecting their “confidence in Group’s prospects.” Indeed, the outlook is positive and the company expects to grow further both organically and by acquisition, as it consolidates further into what looks like an attractive trading niche.

I think Diploma has many fine qualities and is worth keeping a close eye on with a view to buying some of the firm’s shares.

The post Why I like this Warren Buffett-style FTSE 250 share appeared first on The Twelfth Magpie.

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Kevin Godbold 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.

Administration services are tedious and time-consuming, but they are also extremely complex and companies can’t afford to get them wrong. With this being the case, I understand it is often more cost effective for businesses to outsource these functions, rather than build their own in-house teams.

Growth charging ahead 

You only need to take a look at Sanne’s historical figures to see just how big this market for outsourced administration is becoming. From just £19m in sales in 2012, the company reported total sales of £113m in 2017.

The City doesn’t expect growth to slow down any time soon. Analysts have already pencilled in potential revenues of £157m for 2019. Alongside its first-half results release, published this morning, the firm confirmed today that it is currently on track to hit full-year growth forecasts. For the six months to the end of June, revenues grew 17%, although due to “an atypical first half weighting of results in 2017,” profit before tax declined 12% year-on-year on a constant currency basis.

And as well as the bespoke and specialist nature of the firm’s business, what I also like about Sanne is its relatively small size and cash generation. For the first half of 2018 for example, it booked an underlying operating profit margin of 30%. 

These figures indicate to me that the company has plenty of capital to reinvest back into the business and expand into new markets. Bolt-on acquisitions in Madrid, Mauritius and Luxembourg show that this is exactly what management is doing.

As Sanne continues to build on its position in the market for administration services, I would be happy to hold the stock for the next two decades. Currently trading at a forward P/E of 21, the shares don’t come cheap, but I believe it is worth paying a premium to take part in Sanne’s growth story.

Bolt-on growth 

Diploma (LSE: DPLM) is a business that I believe has similar qualities. The company produces specialised technical products for industries such as life sciences. This is not the sort of market where any old business can come and quickly grab market share, Diploma has spent decades building its reputation. And like Sanne, the firm is using its cash flow to acquire smaller businesses to help boost growth. 

The latest acquisition was FS Cables, for a total cash consideration of £18m.

A combination of organic growth from its existing ops, as well as complementary growth from acquisitions, has helped turbocharge Diploma’s earnings expansion over the past five years. It doesn’t look as if experts believe this will change any time soon. 

The City is expecting earnings to expand 26% in 2018, leaving the stock trading at a forward P/E multiple of 25. That’s a bit on the expensive side, but once again I believe this specialist business with enormous growth potential is worth a premium valuation. Over the past six years, earnings growth has averaged just under 10% per annum on a compound basis. 

If this continues, it won’t be long before Diploma grows into its valuation.

The post Have £1,000 to invest? A FTSE 250 dividend stock that I’d buy and hold for the next two decades appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share 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.

Technical triumph

Specialised technical products and services company Diploma (LSE: DPLM) has climbed 120% in the past five years. It still has momentum, up 34% in the last 12 months. This includes a rise of 2.42% today, following publication of the group’s trading update which predicted a 7% rise in underlying revenues for the year ending 30 September, after adjusting for acquisitions and sterling movements.

The £1.58bn group continues to trade robustly with results on track to hit expectations, helped by operations in Europe, US, Russia and Australia, which give it global reach and diversification. It’s looking to accelerate growth through further acquisitions, completing several including Australian diagnostic business Abacus dx in April last year, which is already making a strong contribution to earnings. A couple of weeks ago it also acquired FS Cables, a UK supplier of specialist cable products, for an initial cash consideration of £17m.

Earnings growth

Its pipeline of acquisition opportunities remains healthy, today’s statement says, adding: “The Group has a robust balance sheet and a proven track record of strong cash generation.” With a forecast valuation of 24.9 times earnings this stock isn’t cheap and will have to keep growing to keep investors happy. However, earnings per share (EPS) growth has been steady for years and looks set to continue, with City analysts expecting another 5% gain in the year ending 30 September 2019.

Diploma yields just 1.9% with cover of 2.1, but my Foolish colleague Peter Stephens says investors can look forward to plenty of healthy dividend growth. However, you might want to wait until we hear more about the fate of CEO Richard Ingram, or rather former CEO, because he stepped down this morning with immediate effect. Non-executive director John Nicholas, who is filling in while the board seeks a successor, simply said the board believes a change in CEO “is in the best interests of the Company and its shareholders,” with no further explanation. Investors might want to hear more.

Cat people

While you’re waiting, why not check out IT infrastructure company Softcat (LSE: SCT), which has doubled investors money in an impressive 12 months, rather than five years. The FTSE 250 company provides workplace, datacentre, networking and security solutions, either in their premises or in the cloud, and has quickly grown into a £1.73bn company.

The growth is not confined to the share price with Softcat also offering generous dividend growth, as Royston Wild points out here. The forecast yield is currently 1.3%, but cover of 2.5 gives hope for further rapid progression, with one-off supplementary payments on top. Earnings growth looks promising, forecast 33% rise this year, followed by a more modest 6% in 2019.

Soft power

This is a company that has beaten earnings expectations before, and may do so again. Growth prospects like these don’t come cheap, however, with the stock trading at more than 30 times earnings. But with a sturdy operating model and strategy, it’s worth keeping an eye on this one.

The post Could these 2 FTSE 250 growth stocks double your money again? appeared first on The Twelfth Magpie.

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harveyj 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.

The company seems to have a solid strategy and a low valuation. Its dividend growth potential also appears to be high and as such, now could be the perfect time to buy it alongside a FTSE 250 company with long-term income appeal.

Improving prospects

Having made major changes to its business model in recent years, Aviva now appears to be in a relatively strong position to deliver earnings growth. The company’s restructuring has been significant, but has enabled it to access core markets and growth markets alike. This could lead to an improving financial outlook, with the company being well-placed in stable markets and emerging markets at the present time.

One potential catalyst over the medium term could be acquisitions. The company recently announced that it has around £3bn of excess capital which it is seeking to deploy over the next two financial years. This could mean that part of that sum is used for acquisitions – especially in the digital sphere. This could help to improve customer loyalty, while also allowing the company to remain highly innovative at a time when the industry is undergoing a period of rapid change.

Financial appeal

With Aviva trading on a price-to-earnings (P/E) ratio of around 11, it seems to offer a wide margin of safety. The company is expected to yield 6% in the next financial year and since dividends are covered 1.9 times by profit, they seem to be highly sustainable. This suggests that dividend growth could be high – especially since the company is due to report a 7% rise in earnings in the next financial year.

Of course, Aviva is not the only dividend growth stock which could be worth buying right now. Reporting its half-year results on Tuesday was FTSE 250 technical products specialist stock Diploma (LSE: DPLM), which appears to have a bright income future.

Improving outlook

Diploma’s first half has been relatively positive. Revenue has increased by 8%, while adjusted operating profit has risen by 9%. It was able to capitalise on a strong global trading environment, with it delivering good performance despite currency headwinds.

Acquisitions look set to remain a key growth area for the business. While M&A activity has been limited in recent months due to stronger trading conditions, the company’s acquisition pipeline remains healthy.

Looking ahead, Diploma is forecast to report a rise in its bottom line of 10% in the current year, followed by further growth of 5% next year. Dividends per share are expected to rise by 19% over the next two years and while the company may have a forward yield of just 2.3%, dividend payments are covered 2.1 times by profit. This suggests that further growth could be ahead over the medium term, which may have a positive effect on the company’s share price and allow it to outperform the wider index.

The post Why the Aviva share price could smash the FTSE 100 this year appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Aviva. 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.

And judging by the group’s half-year trading update released this morning, this stellar performance still has room to run. During the period, revenues rose 12% on a constant currency basis thanks to organic growth of 7% and acquisitions adding 5%. While operating margins were broadly level during the six months there’s still scope for full-year margins to improve due to major investments in working capital in H1.

This sort of performance is what the market has come to expect from Diploma and with a cash-heavy balance sheet providing plenty of funding for further acquisitions, I see reason for the group’s GDP+ growth to continue. Also appealing is the group’s focus on essential products like clinical diagnostic instruments and high-end fasteners for industrial applications that ensures a high amount of reliable sales throughout the business cycle.

There are changes ahead for Diploma as it welcomes a new CEO following the retirement of its long-serving leader following 20 years at the helm. However, the incoming CEO appears committed to the same strategy of organic growth and constant acquisitions that has helped turn Diploma into the stellar business it is today. While the group’s shares are pricey at 21.6 times forward earnings, it’s still one stock I’d happily hold in my retirement accounts for years to come.

A surprising growth star

Another mid-cap stock with a solid record of growth behind it that I’d happily own is WH Smith (LSE: SMWH). Although the newsagent hasn’t substantially increased revenue over the past five years, this is something of an accomplishment due to the travails of high street retailers.  

And while sales may have been flat recently, profits have been anything but. From 2013 to 2017, earnings per share leapt from 64p to 104p. That was thanks to good management of the high street business that’s in steady decline but still profitable, as well as high investment in the fast-growing travel retail segment.

In 2017, 9% growth from the travel segment led total group revenue 2% higher year-on-year, despite a 5% drop in high street sales. Much the same happened with profits as management invested in opening new travel outlets at home and abroad.

Looking ahead, there’s still huge potential for the travel business to grow as it only had 249 international outlets open as of January. We need look no further than the success of travel food outlet operator SSP Group, which is run by WH Smith’s former CEO, to see how lucrative tapping into this market can be.

WH Smith’s shares may be a bit highly valued at 17.5 times forward earnings, but the group’s proven management team and high rollout potential make it one mid-cap growth star I’d own for the long term.

The post 2 FTSE 250 growth stocks I’d buy for an ISA today appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK owns shares of SSP Group. The Motley Fool UK has recommended WH Smith. 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.

Rising revenues

Today’s Q1 trading update from £1.3bn cap specialised technical products and services supplier Diploma (LSE: DPLM) gives some indication as to why the company became rather popular with investors over the second half of last year.

Group revenues climbed 10% in the three months to the end of December compared to the same period in 2016. When currency fluctuations are taken into account, this number rises to 14%, with 8% of this figure coming from underlying growth and the remaining 6% coming from acquisitions completed over 2017.  Although impressive, the company did state that sterling’s recovery in the second half of the year had “provided an overall headwind of 4%” to those revenues reported.  

Broken down, Diploma reported a rise of 20% in revenues at its Life Sciences sector — boosted by the acquisition of diagnostic firm Abacus dx in spring last year. Its Seals sector benefited from “strong trading activity” in North America, making up for weaker performance in Australia and Russia. Revenue at the company’s third sector — Controls — rose by 7% thanks to better trading in Europe. All told, today’s statement was really rather positive.

As a result of rising 18% since September, shares in Diploma aren’t the deal they once were. Indeed, estimates for the current financial year leave the stock trading on a somewhat pricey 22 times earnings. At 2.3%, the dividend yield isn’t anything to get excited about either.

Nevertheless, recent trading combined with the company’s attractive balance sheet (£21.9m cash position), and suggestions that it will continue to seek out acquisitions as part of its growth strategy, all suggest to me that last year’s positive momentum should continue. More news regarding its search for a new CEO could provide a further boost to the shares.

Another high-riser

Like Diploma, polymer manufacturer Victrex (LSE: VCT) enjoyed a positive 2017. Over the last year, its shares climbed 35% — a very encouraging performance given the size of the company. 

December’s full-year results revealed a 15% rise in group revenue (or 3% in constant currency) to just over £290m despite “expected and significant reduction” in Consumer Electronics volumes. In addition to an 11% increase in pre-tax profit, the company also reported a stonking 88% rise in the amount of cash on its balance sheet to £120.1m. Given this, it’s perhaps no surprise that management approved a 15% hike to the regular payout, in addition to a special dividend of 68p per share.

Despite the recent strengthening of sterling, Victrex begins 2018 with “positive growth momentum,” according to CEO Jakob Sigurdsson. Its pipeline “remains strong” with the company continuing to target 10%-20% of sales from new products in the medium term, compared to just 4% in 2017.

Unfortunately, grabbing a slice of the action will cost prospective investors a lot more these days. Right now, Victrex’s shares trade at 21 times forecast earnings — a valuation not dissimilar to those of Diploma.

That said, with its focus on investing for growth (through partnerships, alliances, and acquisitions) and a track record of generating excellent returns on the money it puts to use, I consider this an excellent addition to any growth-focused portfolio.

The post 2 hot growth stocks you may regret not buying appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Victrex. 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.

30% fall

The market has been punishing profit warnings quite harshly recently, and IWG didn’t escape lightly. Its shares fell over 30% in the blink of an eye as a result of the warning. Since then, they have continued to trend lower and can now be bought for below 200p. At that price, do the shares offer good value, or is the stock one to steer clear of?

Analysts now expect it to generate earnings of 12.9p for 2017. A dividend payment of 5.4p per share is anticipated. At the current share price, the stock trades on a forward P/E ratio of 15.4 with a prospective dividend yield of 2.7. In my view, those metrics look relatively appealing for a company that has almost doubled its top line over the last five years, and increased its dividend 10 years in a row. The company has stated that it remains “very positive” about the opportunity for the workspace as a service (WaaS) market and its leading position within it.

Having said that, the thing about profit warnings, is that they’re not always a one-off. While the idea that they always ‘come in threes’ may be a bit of a myth, studies from Stockopedia and Ernst & Young have shown that there’s a 30%-40% chance of a company reporting a further profit warning after the first. With that in mind, I’d be reluctant to invest right now, until we see evidence that IWG has its momentum back.

Surging ahead

One FTSE 250 company that does appear to have significant momentum at present is Diploma (LSE: DPLM). It’s shares have surged 11% today on the back of its full-year results released this morning.

Diploma specialises in providing technical products and services for a variety of applications, including consumables and instrumentation to the healthcare sector, and seals, gaskets and cylinders for heavy mobile machinery and industrial equipment. The company has been a strong performer over the last five years, with revenues rising 66%, and today’s full-year FY2017 results demonstrate further momentum, beating analysts’ expectations.

Indeed, for the year ended 30 September, revenue rose 18% to £452m (vs £443m expected), and profit before tax surged 24%. Adjusted earnings per share increased 10% to 49.8p (vs 48.3p expected) and the company lifted its dividend by a healthy 15% to 23p per share. Chief Executive Bruce Thompson commented: “With a proven business model, broad geographic spread of businesses, robust balance sheet and consistently strong free cash flow, the Board is confident that further progress will be made in the next financial year.“

While the stock trades on a punchy P/E ratio of 23.8 after today’s rise, given its strong momentum, and the fact it has broken out to new highs, I wouldn’t rule out further gains going forward.

The post One growth stock I’d buy over IWG plc appeared first on The Twelfth Magpie.

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Edward Sheldon has no position in any 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.

In a bubbly trading update the London-headquarted firm advised that it “has continued to trade well in the second half of the year and remains on track to report results for the full year in line with expectations.”

It expects revenues to grow by around 17% in the 12 months to September 2017, with the tailwinds created by sterling’s decline expected to contribute around 9% to this total. Meanwhile the impact of acquisitions are likely to contribute 2% to the total, Diploma said.

On an organic basis turnover is predicted to have advanced 6%, it added.

Broad-based strength

At its Life Sciences division, Diploma said that revenues are expected to rise by 3%, with sales “helped by stronger second half capital equipment sales in the Healthcare businesses.” Revenues here are also expected to grow thanks to a “good contribution” from clinical diagnostics specialist Abacus which was acquired in April.

Meanwhile, Diploma said that it expects sales at its Seals unit to rise by 4% in the year to September. It commented that “trading activity in North America [has] benefitted from solid revenues in the Aftermarket and a resumption of growth in the Industrial OEM businesses.” In more good news, the company said that revenues at International Seals have returned to growth during the second half of the year.

To round off the good news, Diploma said that sales at its Controls arm are expected to rise 13% for the full year, the division “benefitting from new project activity and a strong focus on developing new sales opportunities.”

It is no surprise that investors have been piling back into Diploma on Wednesday given this broad-based strength. And it is also not difficult to see earnings take off in the years ahead as the company uses its formidable cash flows to fund acquisitions.

The City certainly thinks the FTSE 250 star should continue delivering meaty earnings growth, and has forecast bottom line expansion of 15% and 6% in fiscal 2017 and 2018 respectively.

I reckon the firm is a wise buy right now even in spite of its high paper valuation — the company sports a forward P/E ratio of 22.6 times.

Brace for take-off

I also believe BBA Aviation (LSE: BBA) is worthy of serious attention right now given its robust position in a growing market. The flight support and aftermarket play’s broad base and market-leading capabilities are helping it outperform the wider market, and organic revenues at its Signature support arm rose 3.2% during January-June. And I am confident that the company can continue delivering healthy sales growth as the US economy steadily improves.

The number crunchers expect BBA to report an 18% earnings advance in 2017, and to follow this with another double-digit rise — this time by 10% — in the following year.

And these projections make the flying ace excellent value for money. A prospective P/E rating of 17 times may not be much to shout about, although a PEG ratio bang on the value watermark of 1 certainly is.

The post 2 FTSE 250 growth stocks that could make you a fortune appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended BBA Aviation. 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.

Full of life

Diploma (LSE: DPLM) is international business supplying specialised technical products and services in the life sciences, seals and controls sectors. And it looks like a rewarding place to be, with the share price up more than 50% in the last 12 months. Over five years it has grown 156%, with its performance chart showing an impressively steady upwards climb. Full marks so far. Can its success continue?

Earlier this month, its half-yearly report revealed an impressive 21% rise in revenues and adjusted operating profits to £217.3m and £37.4m respectively, and a 29% rise in profit before tax to £32.9m. Adjusted operating margins held steady at 17.2%, while adjusted earnings per share (EPS) rose 23% to 23.9p.

Full honours

Chief executive Bruce Thompson hailed the group’s strong underlying growth, while acknowledging that it enjoyed a one-off boost from the substantial depreciation in UK sterling. He said the complementary acquisition of Abacus in April has added critical mass and opens up further growth opportunities in healthcare, while the pipeline for acquisitions remains encouraging.

The trading outlook looks positive as City analysts forecast a 15% rise in EPS in the year to 30 September 2017, followed by another 6% in 2018. Revenues and profits also look set to rise strongly. Today’s yield may look low at 1.8% but that is partly a consequence of the stock’s rapid growth. The dividend payout is nicely covered 2.1 times and management is progressive, recently hiking the interim dividend 13% to 7p per share. Investing in Diploma could prove a rewarding education, if you can accept its heady valuation of 26.73 times earnings.

Elementis, Dr Watson

Elementis (LSE: ELM) is up 44% over the past 12 months, although its five-year track record is less impressive than Diploma’s. In June 2015 the speciality chemicals company’s shares plunged 17% to 257p after it issued a profit warning. That was down to the US oil sector slump, which knocked 30% off sales of its additives used in drilling, and weaker Chinese demand for its coatings additives.

Now Elementis is bouncing back, as the US shale industry makes a vibrant comeback and the Chinese economy holds up, with the key manufacturing purchasing managers index showing growth at 51.2 for a second straight month in May.

Chemicals brothers

Elementis is a global operation that employs around 1,400 people in more than 30 worldwide locations, serving customers in North and South America, Europe and Asia Pacific. Last month’s Q1 trading statement reported stronger demand across most of its markets, with further progress expected as it remains on track to increase operating profits.

At 22.7 times earnings it isn’t cheap, although forecast EPS growth of 16% in the 2017 calendar year and 13% in 2018 largely justify that. This reverses falls of 17% and 18% in 2015 and 2016, suggesting that the company is back on track. Its well-covered dividend is forecast to hit 2.5%. The company is in its element right now, although recent volatility shows that it requires healthy demand from a buoyant global economy. Are you feeling bullish?

The post 2 exciting momentum stocks with massive potential appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Elementis. 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.