I’ve always had a soft spot for online musical instrument and equipment retailer and growth stock Gear4music (LSE: G4M). Unfortunately, today’s interim results from the small-cap have been poorly received by the market and the share price tanked 20% as trading commenced. What’s got investors so spooked?

Bum note

Revenue over the six months to the end of September came in at £64.7m. This was down 8% on the same period in 2020. However, one must remember that G4M benefited hugely from multiple UK lockdowns over that time. As such, beating that haul would always be a challenge. Earnings before interest, tax, depreciation and amortisation (EBITDA) also fell 43% to £4.8m.

On a more positive note, revenue and EBITDA were still 31% and 140% higher respectively than in the same six months in 2019. For me, this is a better gauge of how far the company has come. 

Here’s where things get more problematic. While the dip in sales was inevitable, investors didn’t like the news that revenue over G4M’s third quarter to date has been “slower than expected due to ongoing Brexit supply chain challenges“. Sales in Europe had also been slower than predicted.

This loss of momentum has forced CEO Andrew Wass and co to revise their guidance for the full financial year. EBITDA of “not less than £12m” is now expected — 36% lower than last year. It’s also lower than the £14m projected by analysts.

All this doesn’t look great, especially as the company only upgraded its forecasts back in June following a storming Q1. Nevertheless, G4M does expect the aforementioned challenges to be sorted out by the final quarter as its new distribution hubs in Ireland and Spain get up to speed.

Clearly, a successful pre-Christmas trading period is vital if the shares aren’t to fall further. However, I’m inclined to think that today’s fall is simply a bum note. The unstoppable rise of online shopping, even for very specific items like instruments, should allow G4M to continue grabbing market share. The proposed move into the audio-video space via the acquisition of AV Distribution Ltd is also a sensible move and should help to diversify earnings. 

There’s still much to like about this growth stock and I’d be willing to buy at this level.

On song

G4M is not the only music-related growth stock out there. Another company — audio products supplier Focusrite (LSE: TUNE) — also reported to the market this morning.

In sharp contrast to G4M, TUNE reported a 34% jump in revenue to just under £174m. Adjusted EBITDA also soared 67% higher to £47.5m as musicians and podcasters snapped up Focurite’s products “in record numbers” over lockdowns.

There could be more good news to come. As live events return, CEO Tim Carroll said that demand had “remained strong” into the new financial year. Product launches also make him “cautiously optimistic” on achieving “modest revenue growth“. However, operating costs are expected to rise, partly in light of supply chain pressures.

Of the two growth stocks mentioned, I’d probably snap up G4M over TUNE. I’ve always felt that the latter’s valuation was getting ahead of itself. Even before today’s 8% rise, the stock was trading on 39 times forecast earnings. As good a company as this is, that’s very rich.

For me, G4M probably offers a better margin of safety.

The post The Gear4music (G4M) share price just crashed. I’d buy this growth stock now 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 Focusrite and Gear4music. 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.

With concerns over inflation, supply chain issues and the perpetual elephant in the room that is Covid-19, I think it’s wise to keep a wishlist of stocks I’d be ready to buy if the recent sag in momentum turns into a correction. Having already looked at the FTSE 100 and FTSE 250, today it’s the turn of AIM stocks.

On song

The progress of audio equipment and software supplier Focusrite (LSE: TUNE) has been a thing to behold. In five years, the share price is up almost 900%! So much for the general belief among investors that risky AIM stocks never deliver.

A beneficiary of multiple UK lockdowns, the High Wycombe-based business now expects to report roughly £173m in revenue for the year to the end of August. That’s 33% up on the previous year. It’s also ahead of what the market was expecting. 

This is not to say the £1bn cap is risk-free. In addition to being susceptible to the global shortage of semiconductors, Focusrite recently warned on “significantly higher than normal” freight and shipping costs. This makes the current P/E of 44 look very rich, in my opinion.

Yes, it may boast eight brands and a net cash position, but I feel no stock is worth buying at any price. If a market correction comes, however, I’ll be first in the queue. 

Growth potential

Global identity specialist GB Group (LSE: GBG) is another AIM stock that has rewarded long-term holders. While unable to compete with Focusrite’s gains, the shares are still up over 175% since 2016. Again, this demonstrates how I might be able to generate above-average returns by looking for quality businesses on the junior, rather than the main, market.

I wouldn’t bet against GBG continuing to deliver. As the AIM stock highlighted in July, the huge growth in online activity should mean trading remains buoyant at each of its divisions: Identity, Location and Fraud. Indeed, the near £2bn-cap company said that it had already made a “good start” to its new financial year following record business in FY21. 

Defensive AIM stock

A final AIM stock on my buy list in the event of a significant market wobble is CVS Group (LSE: CVSG). Having doubled in value over the last 12 months, I remain convinced the veterinary services provider is a great play on the UK’s enduring love for pets. There certainly won’t be a lack of demand considering the huge number of households that have bought a puppy, kitten or (insert animal of choice) over the last 18 months or so. 

Once again, however, the valuation looks unattractive. CVSG shares trade on a forward P/E of 32. That’s still high, especially as margins in this line of work aren’t particularly large. Another potential risk here is that it may struggle to recruit the best talent to meet growth targets. I still regret not snapping up the stock back in 2019 when concerns over the shortage of suitably qualified vets following Brexit sent the share price down to just above the 400p mark. 

For now, CVSG stays on my watchlist.

The post 3 AIM stocks to buy when stock markets next tumble 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 Focusrite. 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.

On song

Last Friday’s trading update from music software specialist Focusrite (LSE: TUNE) was more good news for existing holders. 

A trusted brand among amateurs and professionals, Focusrite’s products continue to fly out of warehouses. Trading has been so good that revenue, profits and cash are ahead of where management predicted they would be at this stage of the financial year. As a result, the £600m cap suspects it will exceed current market expectations. It also confirmed it has cleared all bank debt.

Naturally, this good news hasn’t gone unnoticed. The valuation is now 28 times forecast earnings. That’s punchy given the global shortage of semiconductors (of which it uses a lot) and the impact this could have on trading. Another thing to consider is whether Focusrite’s existing holders will begin banking profits as restrictions are lifted. So I’m watching from the sidelines for now.  

Purple patch

It’s hard to talk about quality stocks and not mention Games Workshop (LSE: GAW). After all, the FTSE 250 member has been one of the best performing UK growth shares over the last five years. 

Based on recent trading, it looks like this purple patch can continue. January’s half-year report revealed a 26% rise in revenue and 56% increase in pre-tax profit compared to the same period in the previous year. 

I feel GAW possesses many of the hallmarks of a stonking business. It generates high margins and returns on capital. It’s also cash-rich and the clear leader in a niche market. Once again, however, the valuation is far from cheap at 29 times forecast earnings. Like Focusrite, there’s also a chance trading could normalise once restrictions are lifted. In such circumstances, one might expect food and beverage firms, holiday companies and airlines to make the biggest gains. Fantasy figurine makers? Perhaps not.

Again, I’m not inclined to buy right now but I will be backing up the truck in the event of a sustained fall in the wider market.

Outperforming

The last of the UK growth shares I’d be interested in buying would be ingredients provider Treatt (LSE: TET). Similar to Focusrite and Games Workshop, its shares have been on a tear since the market crash. They’re up 200% in just eleven months.

There’s no shortage of reasons for staying bullish either. Trading in FY21 to date has been “significantly better than expected” and supported by new business wins in the fast-growing global alcoholic seltzer category. This has, in turn, led Treatt’s management to predict that pre-tax profit is now likely to “materially exceed” the £15.1m currently pencilled in by analysts. 

Even so, none of this can be guaranteed. After all, parts of Treatt’s portfolio continue to be affected by the ongoing closure of hospitality venues around the world. A valuation of 38 times forecast earnings also suggests a lot of good news is already priced in. 

It stays on the watchlist for now but if UK growth shares see their prices falling, I’ll jump in.

The post Top UK growth shares to buy if this market bubble bursts 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 owns shares of Games Workshop. The Motley Fool UK has recommended Focusrite and Treatt. 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.

With this in mind, here are three market minnows that have all been setting new share price highs recently. 

High flyers

£220m cap scientific instruments business Judges Scientific (LSE: JDG) has been in excellent form of late, rising 46% since January. If 2018’s numbers are anything to go by, there could be more to come.

Thanks to strong demand and foreign exchange tailwinds, revenues grew 9% (5.5% of which was organic) to a record £77.9m last year and adjusted operating profit jumped 35% to £14.7m.   

According to Chairman Alex Hambro, the new financial year has “started well” and the firm is “well positioned to face the uncertain macro and political climate“. The recent 25% hike to the total dividend backs this up this statement. 

Assuming analysts are correct in predicting a 23% rise in earnings per share in 2019, Judges’s shares are changing hands on a P/E of just under 19. With rising returns on capital and improving free cash flow, I rate the shares as a cautious ‘buy’.  

Despite its memorable ticker, I still think music hardware and software product supplier Focusrite (LSE: TUNE) is a company that the majority of retail investors won’t have heard of. Considering its share price is now over 70% higher than it was two years ago, however, this market leader is clearly getting more attention than it used to. 

It’s not hard to see why.

April’s half-year figures (covering the six months to the end of February) included a 4.1% rise in revenue to £40.4m and a very encouraging 22.6% jump in pre-tax profit to £7.2m. The interim dividend was lifted 20% and the company had net cash of a little over £26m on its balance sheet at the end of the period. 

Trading on 29 times forecast earnings, prospective buyers of Focusrite’s stock will need to be confident that management’s strategies to deal with import tariffs in the US and ongoing economic and political uncertainty will be sufficient to stop the share price losing momentum. A number of product launches planned for this year should also help.

That said, I wouldn’t be tempted to jump on board at this price. For those already holding, banking some profit feels prudent.

Liontrust Asset Management (LSE: LIO) is my final pick of firms whose shares are hitting all-time highs. 

Despite some in the industry experiencing problems of late, shares in the business have been solidly rising for the last three years. Had you purchased Liontrust back in June 2016, you’d have a stonking gain of around 180% now.

As my Foolish colleague Harvey Jones reported recently, the company’s latest set of results were certainly encouraging considering “recent market bumpiness“. 

Compared to peers, Liontrust’s shares still look reasonably priced on 14 times predicted earnings. A forecast 3.9% yield makes it the highest dividend payer of the three covered today and it also has net cash on its balance sheet. 

While nothing can be guaranteed when it comes to future performance, particularly for companies whose success is so reliant on general market sentiment, I reckon the shares could be another cautious buy.

The post 3 under-the-radar small-cap stocks hitting all-time highs. Buy, hold or sell? 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 Focusrite and Judges Scientific. 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.

Even market darlings such as Boohoo and ASOS have been hammered after having failed to meet investors’ already-lofty expectations, despite raking in the cash. 

Notwithstanding this, some companies — and their share prices — have bounced back hard. The question, however, is whether there’s any more upside ahead. 

Unlocking growth

I’ve not looked at small-cap challenger law firm Keystone Law (LSE: KEYS) since October. Back then, I was bullish on the minnow’s future. Three months later, I’m just as positive. 

To recap, Keystone’s goal is to become a leading mid-market firm. It aims to attract both lawyers and clients using its “distinctive platform model“. Rather than operate from a set of offices, the former can work from home and use the support and administrative services provided by the company, with Keystone taking a cut of their fees.

According to last week’s update, the AIM-newbie has “continued to trade strongly” in H2, so much so that management now predicts profits will be “comfortably ahead” of what the market was previously expecting when it provides full-year numbers in May. 

Keystone is clearly in a purple patch. Returns on capital employed are increasing and there’s no debt on the balance sheet. Despite ongoing investment, it even pays a dividend (the predicted 8.25p per share cash return in the current year equates to a yield of almost 2.1%). 

The only trouble with all this is that Keystone’s shares now trade on a pretty punchy valuation. Assuming the company is able to achieve the 15% rise in EPS expected in the next financial year (beginning February 1), the stock trades on 29 times forecast earnings. This clearly leaves little room for error. And if further upgrades don’t come, many investors will probably head for the exits and ask questions later. Such is the difficulty of managing expectations.

If you really must take a position now, scaling-in may be the way forward.

Still on song

Like Keystone, junior market peer Focusrite (LSE: TUNE)  can do no wrong at the moment. 

In a very short update released just before Christmas, the supplier of hardware and software products to musicians stated that revenue for the financial year to date was “now ahead of the comparative period last year“, following strong trading in November. This builds on impressive numbers from 2017/18, including a 13.7% rise in revenue to £75.1m and 18.1% rise in EBITDA to £15.5m. The firm is debt-free and had cash of almost £23m at the end of the last financial year. 

Headquartered in High Wycombe, Focusrite was my top pick all the way back in November 2017.  Since then, its share price has climbed a very satisfying 82%, highlighting just how profitable smaller stocks can be for investors over a short period of time. 

As a result of this, however, the shares are nowhere near as cheap to acquire as they used to be and currently change hands for almost 28 times earnings. When it’s considered that those in the city are still only expecting low single-digit EPS growth this year and next, I’m inclined to think that it might be best to wait for things to cool a little. 

The post These small-cap growth stocks have been absolutely flying. Is it too late to buy in? 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 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.

Since there’s little sign that the oil price will deliver a sustained recovery in the coming months, there could be further pressure on the stock’s valuation. However, here’s why this could represent an opportunity for Foolish investors to capitalise on its long-term potential.

Margin of safety

Of course, not all shares have experienced declining performances in recent months. Reporting on Friday was global music and audio products company Focusrite (LSE: TUNE). It released a brief trading statement which showed that its performance in November has been strong, with the momentum seen in previous months continuing. As a result, its revenue for the financial year to date is now ahead of the same period last year.

With the Focusrite share price having gained 47% over the last year, it now has a valuation which suggests that it lacks a margin of safety. For example, it trades on a price-to-earnings (P/E) ratio of around 27. This indicates it may lack investment appeal, since it’s expected to post earnings growth of just 5% in the current financial year.

At a time when a number of other stocks are trading on low valuations, the company may prove to be relatively unappealing over the long term. As such, it could be a stock to avoid, based on its current valuation.

Long-term potential

As mentioned, Shell’s near-term prospects could prove to be relatively challenging. The oil price has a volatile history, and this looks set to continue in the short run. It has already fallen by 38% since the start of October, and investors appear to be factoring in further risks for the industry. Demand may suffer from a rising US interest rate, as well as the prospect of further tariffs on imports, and this could see a wide range of energy sector stocks experiencing declining valuations.

As ever, falling share prices could present a buying opportunity for long-term investors. In the case of Shell, the company has one of the strongest balance sheets in the industry, while also enjoying greater diversity than many of its industry peers. Therefore, it could offer less risk than many sector rivals, while also having high return potential.

Its recent decline means that the stock now has a P/E ratio of around 11. This suggests it could offer a margin of safety versus its intrinsic value. Although there could be further falls ahead for its share price, in the long run the company could offer recovery potential. A dividend yield of 6.3%, which is covered 1.5 times by net profit, suggests its total returns could be higher than those of the FTSE 100 in the coming years.

The post FTSE 100-member Shell’s share price is in freefall! This is what I think you should do appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Royal Dutch Shell B. 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.

As such, the investment appeal of online fashion retailer Boohoo (LSE: BOO) seems to have increased in recent months. Its shares now seem to offer better value for money after their 30% fall in the last year. In contrast, a growth stock reporting encouraging performance on Tuesday now seems to be significantly overvalued.

High price

The company in question is global music and audio products specialist Focusrite (LSE: TUNE). It released a trading update for the financial year to 31 August and has delivered growth in revenue and profit when compared to the previous year. Its performance has been in line with expectations, with revenue expected to be 15% higher than in the previous year.

The business has been able to deliver growth across all of its major regions. Its core categories have performance well, with new programmes delivering positive results so far.

Looking ahead, Focusrite is expected to build on its strong performance in the last three financial years, where earnings have risen in each year. Its bottom line is due to rise by 6% in the current financial year, and this suggests that its strategy is working as planned. However, since the stock has a price-to-earnings (P/E) ratio of around 28, it appears to lack a margin of safety. As such, now may not be the right time to buy it following its share price rise of 223% in the last year.

Value for money

In contrast, Boohoo’s shares seem to offer excellent value for money at the present time. As mentioned, they have endured a disappointing 12-month period, but the performance of the company from a business perspective continues to be upbeat. It is forecast to post a rise in earnings of 18% in the current year, followed by further growth of 24% next year. This puts the stock on a price-to-earnings growth (PEG) ratio of 1.6, which is relatively low compared to its historic valuations.

Boohoo recently announced a change in CEO. The current joint-CEOs will take up different positions at board level, with a new CEO joining from Primark set to focus on building the firm’s brands yet further. This could be a shrewd move by the company, since a broader skill set may be required now that it has reached its current size.

With demand for its products likely to remain high due to their price point and focus on customer service, the outlook for the company remains bright. Although further share price falls cannot be ruled out in the short run, in the long run there could be significant growth potential on offer.

The post Are you tempted by the 30% fall in the Boohoo share price? Here’s what you need to know appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo 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.

So long as recent performance continues, I think the following market minnows could be excellent picks for growth-focused investors.  

“Significantly ahead” of expectations

Since last looking at the company in November, shares in designer, manufacturer, and supplier of advanced testing systems for the car industry AB Dynamics (LSE: ABDP) have done really rather well.

Although we’re averse to snatching at profits at the Fool, you’d have locked in a gain of around 50% if you had picked up the stock back then and held until early January. Even taking into account the pull-back seen over the last couple of months, the shares were still up by a none-too-shabby 20% before this morning’s bullish trading update.

Revenues and operating profits for the interim period (six months to the end of February) are now predicted to be “significantly ahead” of the same period in the previous year and “in line with management expectations“.

Encouragingly, the £170m cap’s track testing products continue to be popular with a “further increase in demand” witnessed over the reporting period. A bulging order book will keep staff at the Bath-based business busy until the end of August and according to Chairman Tony Best, into its next financial year. Mr Best went on to say that AB’s new HQ has allowed it to further improve production capability and should “facilitate further growth” going forward. 

All told, I continue to believe that AB deserves its lofty valuation of 26 times predicted earnings.

On song

£268m cap music and audio products supplier Focusrite (LSE: TUNE) was my ‘top pick’ in November.  It’s up 67% so far. When you cast your eye over this month’s trading update, it’s not hard to see why. 

Revenue and profits have both grown over H1, with the former now expected to be “over” £38m — a rise of at least 19% compared to the same period in 2016/17. 

Positively, this growth has been seen “across a wide range of product groups and regions” with sales of the company’s Scarlett and Launchpad ranges especially buoyant over the festive period. Indeed, CEO Tim Carroll thinks recent performance “may signal a wider consumer appreciation” of the company’s products.

Looking ahead, things could get even better for holders. Despite stating that it was keeping “a close and cautious eye” on issues faced by the music retail industry, Mr Carroll also revealed that Focusrite’s management remains “confident about the outlook for the current financial year and beyond“.

Away from recent results, it’s worth pointing out that the small-cap has a history of generating enviable returns on the capital it invests (often indicative of a quality business). Its finances also look solid with a net cash position of £19.7m at the end of February — 39% better than at the end of its last financial year. 

Clearly, the huge rise in price over the past few months means that its shares — like those of AB Dynamics — are not the bargain they once were. That said, I’m confident that the Wycombe-based business remains worthy of investment, especially if short-term traders decide to take profits over the next few weeks and provide a cheaper entry point.

The post 2 top small-cap growth stocks that could help you become an ISA millionaire 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 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.

However, deciding which stocks could offer the best performance could prove to be difficult. Valuations are higher than they have been for some time, and there remain risks to the future prospects of companies operating in various geographies. With that in mind, here are two shares that seem to offer favourable risk/reward ratios.

Improving performance

Reporting on Friday was global music and audio products company Focusrite (LSE: TUNE). The company’s first-half results showed that there has been growth across a wide range of product groups and regions. Sales of its Scarlett and Launchpad ranges have grown strongly, with higher demand over Christmas being a key reason for this.

Revenue is expected to rise from £32m in the first half of the prior year to around £38m in the first half of the current year. And with the business delivering strong cash conversion, it means it has a net cash balance of £19.7m. As such, it appears to be in a strong position to generate further growth.

Although there are headwinds in the music retail industry, the overall prospects for the industry remain positive. Innovation could prove to be the key to growth, as consumer tastes change rapidly and new technology can prove to be disruptive. In this area, Focusrite appears to be well-positioned and this could lead to strong growth over the long run.

Looking ahead to next year, the company is expected to report a rise in earnings of 7%. This could help to boost its share price performance after a rise in its valuation of 75% during the last year.

Steady growth

While the feeling among many investors is one of optimism at the present time, that could quickly change. Risks continue to face the world economy, with Brexit just a year away and inflation potentially set to cause interest rates to rise. As such, seeking out stocks that are able to offer dependable growth could be a shrewd move.

One such company is beverages stock Diageo (LSE: DGE). The nature of its business means that its earnings profile is usually relatively robust. Demand for alcoholic beverages often remains high even during difficult or uncertain periods for the economy. As such, it may offer consistent share price growth during a mix of economic conditions.

With Diageo forecast to post a rise in its bottom line of 6% this year, followed by 8% next year, it appears to offer an impressive outlook. With exposure to various geographies across the globe, it is well-diversified. And with an efficiency programme in place, its financial performance may improve beyond next year. As such, it could be worth buying today for the long run.

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Peter Stephens owns shares in Diageo. The Motley Fool UK has recommended Diageo. 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.

One place to look for growth is in among turnaround stocks which have been suffering from any sort of cyclical downturn. And one of those that has caught my eye for a while is Gulf Marine Services (LSE: GMS).

Gulf is a company that supplies services to the offshore oil and gas industry, in the form of providing self-propelled, self-elevating support vessels. And with the oil price slump leading many producers to cut back on capital investment and operating costs, the company has been suffering — the shares have lost 60% in the past five years, to 52p.

But after a trading update in August led to a fresh dip, the price has been picking up again — and though September’s interim results made for superficially grim reading, an operational Tuesday hints at the beginnings of a new optimism.

Improving demand

Tender levels for all of the firm’s vessel classes are said to be “improving in the oil and gas sector in the Middle East,” although timing of contract awards looks like it might still be erratic for a while.

Utilisation levels for Gulf’s large and mid-size vessels is up to 74%, which is encouraging, though debt still troubles me — at £381.3m at 31 October, it needs to come down for confidence to strengthen some more, I think.

The full year is still expected to be tough, with trading in line with expectations. But a big earnings turnaround forecast for next year would see the P/E drop to under 12. If that comes off, I think we could easily be looking back on 2017 as a very good year to buy Gulf Marine Services.

All-out growth

Focusrite (LSE: TUNE) looks more of an out-and-out growth candidate, having seen its earnings per share rising strongly since flotation on AIM in December 2014. And over the same period, the shares have more than doubled to today’s 303p. 

But with a more modest year forecast for 2018 and the share price flattening off a little, we could be looking at a buying opportunity.

The music and audio products supplier has just revealed a 33.5% rise in pre-tax profit to £9.5m, accompanied by a 30% rise in diluted earnings per share to 14.8p.

The dividend for the year has been hiked by 38% to 2.7p per share, and though that’s a yield of only around 1%, it highlights for me a key attraction of the company — it’s highly cash generative. Focusrite ended the year with net cash of £14.2m on the books, way up from the £5.6m it had a year previously — I’m not surprised my colleague Paul Summers recently described the company as having “many of the hallmarks of a quality business.”

Use of cash

CEO Tim Carroll told us that “since the year end, revenue and cash have both grown further,” adding that the company’s “solid momentum has continued into the current year.”

Forecasts suggest a forward P/E of around 21, but I see the analysts’ projections as being too conservative at this stage. The firm tells us it is targeting a dividend cover of four to five times in order to focus on future growth, and it looks to be targeting its cash in the right way to me.

I’m usually wary of early growth stories, but I do like the look of Focusrite at this stage.

The post Two growth stocks I’d buy and hold for the next decade appeared first on The Twelfth Magpie.

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Alan Oscroft 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.