This suggests they could offer a wide margin of safety at a time when the prospects for the UK banking sector are highly uncertain.

Of course, other stocks also experiencing challenging futures lack value for money at present. One such company released a disappointing update on Tuesday, and may therefore be worth avoiding.

Weak sentiment

The stock in question is manufacturer of optical components and systems Gooch & Housego (LSE: GHH). Its interim results showed a fall in adjusted pre-tax profit of 22.8%, with a challenging industrial laser market the key cause for the decline. It’s been impacted by a cyclical downturn, as well as the impact of the US/China trade dispute.

As a result, the company has reduced its guidance for the full year, which prompted a 24% fall in its share price following the release of its results. Although the company remains optimistic about prospects for the industrial laser sector over the long term, and is seeking to invest in R&D alongside greater diversification, weak investor sentiment could push the Gooch & Housego share price even lower in the short run.

Uncertain outlook

Although sentiment towards the Lloyds share price has been weak at times in the last few years, the company has been able to deliver improving operational and financial performances. Key to this has been its ability to reduce costs at a faster pace than many of its industry peers, now having a highly competitive cost/income ratio.

In tandem with cost reductions, Lloyds has also been able to invest in its long-term growth potential. It appears to be aligned with changing customer tastes, with investment in its digital offering likely to remain high.

While there are risks ahead for the business from a weak UK economy, its current valuation suggests the stock has a wide margin of safety. As mentioned, it trades on a P/E ratio of 7.5. Assuming the stock will trade on a still-highly-appealing rating of 13 over the long run, it could be worth over 100p. This would represent a potential capital gain of around 75% from its current price level.

Of course, political and economic risks could hold back investor sentiment in the near term. But with the prospect of rising interest rates, the end of PPI claims, and a dividend yield in excess of 6%, Lloyds appears to have an enticing risk/reward ratio for long-term investors.

Therefore, even though further pain could be ahead in the short run from a weaker operating environment, its long-term growth capacity appears to be high.

The post Why I think FTSE 100-member Lloyds’ share price could be worth 100p appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Gooch & Housego and 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.

And even though the company’s stock has risen more than 75% over the past year, I think more astounding growth could be on the way as the group sets its sights on the massive European market. Its latest two acquisitions there total €274.1m and not only broaden the group’s exposure to new regions, but also marked its first foray into ceramic flooring, a huge market in its own right.

Even before these two high-margin acquisitions, revenue has been growing quickly with sales up a whopping 24% year-on-year in the half year to September. Much of this growth came from acquisitions but I estimate organic growth of around 4% was recorded in the period, which is very, very good.

With growth accelerating and a stellar history of consistently improving margins and cash flow across the business, I think Victoria is setting itself up for another great year.

You’ve got mail 

Also on my list is digital marketing software provider dotDigital (LSE: DOTD). The company’s share price has leapt by 50% in the past year as its dotmailer e-mail and multi-channel marketing tool has caught on with clients looking for effective, easy-to-use automated methods to stay in contact with prospective and current customers.

With a highly effective, but low-cost, core product, dotDigital has had few problems finding clients ranging from small businesses to FTSE 350 firms. In the half year to December, revenue was up 25% to £18.8m due to a small bolt-on acquisition and impressive organic expansion of 17%.

And unlike many small firms that are growing rapidly but lose loads of money, dotDigital is profitable and has a large cash position. This is in large part due to the fact that over 80% of its revenue is highly profitable recurring sales from existing clients. In 2017 this led to EBITDA margins hitting 31.5% and net cash rising to £20.4m, although a recent £11m acquisition will dent this figure.

With a great product in a fast growing market, cash on hand and proven profitability, I think dotDigital is attractively priced even at 30 times full year 2018 earnings.

To infinity and beyond 

A more out-of-this world option I’ve got my eye on is Gooch & Housego (LSE: GHH), which is an expert in designing high-quality optical components for end markets ranging from space agencies to health imaging and a wide variety of industrial applications.

In the year to September the group’s revenue jumped 18.7% on a constant currency basis to £112m due to organic growth and a small acquisition. This growth was driven by particularly strong demand and management is investing heavily in both R&D and acquisitions to support what are expected to be years of strong growth.

And in the meantime the business is still strongly profitable with adjusted pre-tax profits hitting £16.1m last year and its net cash position rising to £14.9m at year-end. While Gooch & Hosuego isn’t cheap at 26 times forward earnings, the group’s strong competitive position and high growth prospects make it very attractive to me.

The post 3 promising stocks I’d buy in 2018 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 has recommended dotDigital Group and Gooch & Housego. 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.

Both companies have delivered gains of at least 200% over the last five years. Although these high-performing stocks aren’t cheap by conventional measures, I believe both have the potential to deliver further gains.

Sales up 30%

Gooch & Housego (LSE: GHH) makes “optical components and systems” used in a wide range of industries. These include telecoms, oil and gas, defence and life sciences. The group’s products are highly technical, but today’s accounts for the year to 30 September were refreshingly simple.

Sales rose by 30% to £112m last year, while pre-tax profit was 24.8% higher, at £12.6m. Adjusted earnings per share rose by 16% to 49.4p and the dividend climbed 13% to 10.2p.

Cash generation remained strong and the Somerset-based firm ended the year with net cash of £14.9m, 28% above last year’s figure of £11.7m.

The outlook for the current year is also positive. Gooch & Housego reported a record year-end order book of £72.1m, 36.5% higher than at the same point in 2016.

What do these figures tell us?

The stock has risen by nearly 4% today to 1,450p. This gives the shares a trailing P/E of 29, with a dividend yield of just 0.7%. Clearly this is a stock for growth investors.

One potential concern is that this business isn’t massively profitable. Last year’s operating margin was 11.8%, consistent with 2016. Today’s results appear to have been boosted by acquisitions, and I suspect the company may require further acquisitions to maintain an attractive growth rate.

However, the firm’s strategy of pursuing organic and acquisition-led growth appears to be working well at the moment. Analysts expect adjusted earnings to rise by a further 10-15% this year, putting the stock on a forecast P/E of around 25. At this level, I’d continue to rate the shares as a buy for long-term investors.

Everyone hates queuing

Queues for popular rides at theme parks can involve very long waits. This isn’t much fun, and so perhaps it’s not surprising that Accesso Technology Group (LSE: ACSO) has been so successful.

Shares in this firm — which makes virtual queuing systems that eliminate the need to stand in line — have risen by 535% over the last five years. Shareholders who bought the stock when it floated in 2002 have enjoyed an incredible 2,100% gain, if they’ve held onto their shares.

More to come

The Reading-based firm is increasingly the virtual queuing partner of choice for many large visitor attractions. Sales rose by 17.4% to $46.6m during the first half of this year, while adjusted operating profit climbed 30% to $6.5m. Adjusted earnings per share — excluding acquisition costs — rose by 40.8% to 22.25 cents during H1.

Accesso’s adjusted earnings are expected to be broadly flat this year, but in 2018 analysts expect to see the group’s earnings climb by a staggering 50% as recent acquisitions and contract wins kick in. This puts the stock on a forecast P/E of 39.

That may seem pricey, but it implies a price/earnings growth (PEG) ratio of just 1.1. That’s close to the threshold of 1 that legendary growth investor Jim Slater used to find cheap growth stocks.

In my view, investors should continue holding while the company is performing so well.

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

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Roland Head has no position in any of the companies mentioned. The Motley Fool UK has recommended Gooch & Housego. 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, which provides remote meeting services, advised that revenues bulged 44% during the six months ending June, to £8.65m. As a result, EBITDA increased 81% to £1.61m.

Chief executive Steve Flavell said: “We are very pleased to report continued strong performance in our 2017 interim results. LoopUp is benefiting from significant momentum and the 44% growth in LoopUp revenue exceeds FY2016 and FY2015 growth rates both as reported on a pound-sterling basis and on a constant currency basis.” Its revenues at stable exchange rates rose 37.2% last year versus 31% in both 2016 and 2015.

“Like-for-like gross margins have improved, the business has developed its profitability at both EBITDA and operating levels and our metrics for new business acquisition efficiency and business retention remain strong,” Flavell added.

The meetings mammoth witnessed particularly strong demand growth from across the Atlantic, with sales in the US now accounting for 52% of the group total. The UK is responsible for 36% of aggregated turnover, while LoopUp sources 10% of sales from mainland Europe and 2% from its other global territories.

And the business has kept the momentum going since the period end, Flavell advising: “The second half of 2017 has started encouragingly with some major new customer wins set to roll out, and we remain confident for the full financial year as well as in our ability to deliver growth beyond that.

It attributes its continued positive performance and outlook to its “highly differentiated product strategy in the large £5bn market for outsourced remote meetings services,” he added.

Earnings set to explode

The City’s army of analysts also believe that the future looks extremely perky for the communications play, and have pencilled in earnings expansion of 167% and 332% in 2017 and 2018 respectively.

A subsequent forward P/E ratio of 142 times may look expensive on paper. But I would argue that a PEG reading of 0.9, below the bargain-benchmark of 1, suggests that LoopUp is very attractively priced relative to its growth outlook.

Today’s surge to new record tops means that the London firm has seen its share price swell almost 90% since the start of the year. And I expect the share price to continue marching higher as sales march skywards, and particularly in North America.

Record maker

Gooch & Housego (LSE: GHH) is another London-listed stock expected to deliver stunning earnings growth right now and in the future.

In the year to September, the number crunchers have chalked in bottom line expansion of 10%. And an extra 16% increase is expected next year.

This optimism is not a great surprise given that revenues continue to boom. Robust demand from the telecoms, precision inspection equipment and microelectronic manufacturing segments drove revenues 36% higher during October-March, to £52.2m. And the company is throwing huge sums at product development and M&A to keep turnover on an upward slant.

Whilst Gooch & Housego may boast an elevated earnings multiple of 23.8 times, I reckon the company’s encouraging sales momentum (its order book stood at a record £66.6m as of March) warrants such a premium rating.

The post 2 small-cap growth stocks that could make you brilliantly rich 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 has recommended Gooch & Housego. 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.

Photonics specialist Gooch & Housego (LSE: GHH) stepped back from recent record highs in Tuesday business following the release of latest financials.

The stock was nursing a fractional decline as half-year numbers came in as expected, and reflected bouts of light profit-taking after recent share price strength. Gooch & Housego has advanced 42% since the start of the year, and topped £14.50 per share just this week.

However, I expect the Ilminster business to resume its upward trek quite soon as sales head to the stars.

Keep an eye out

It announced that revenues exploded 36% during the six months to March 2017, to £52.2m, a result that powered adjusted pre-tax profit 11.8% higher to £6.2m.

The firm announced that this robust sales growth was “driven by telecoms, precision inspection equipment and microelectronic manufacturing sectors.” It noted that “market conditions continue to be positive,” and that it remains on track to meet full-year expectations.

Gooch & Housego has a long history of generating solid earnings growth, and the City expects this pattern to continue for some time yet. Indeed, a 10% rise is forecast for the 12 month period to September 2017, up from 8% in 2016. And the momentum is expected to keep increasing, a 17% advance pencilled-in for 2018.

Some investors may baulk at the tech star’s forward P/E ratio of 30.7 times, a figure that sails above the widely-regarded value benchmark of 15 times. But I believe Gooch & Housego is worthy of such a premium.

The photonics play continues to witness breakneck levels of new business, its order book exploding 70.5% year-on-year during the first fiscal half to a record £66.6m.

And through a combination of acquisitions (like that of StingRay Optics in February) and increased product investment (it raised R&D spend by 28.6% in October-March, to £4.5m), I believe the company is in great shape to ride market conditions

Manufacturing marvel

I am convinced that consumer goods colossus Unilever (LSE: ULVR) also remains a stellar pick for those seeking strong earnings growth in the years ahead.

The Marmite and Dove soap manufacturer has been on the end of rampant buying activity in recent months, the stock shooting 33% higher since the turn of January and topping out above £43.60 per share just today.

And it is easy to see why it has continued to stride higher, the firm shrugging off difficulties in any of its territories to keep sales chugging higher. Indeed, the manufacturer saw underlying sales rise 2.7% during January-March, speeding up from the 2.2% rise printed in the prior quarter.

It is this resilience that makes Unilever one of the safest growth stocks out there, the London firm’s broad stable of industry-leading labels commanding customer loyalty that few others can match. And the firm’s investment in the development and marketing of these products should keep sales on an upward bent, and particularly so in its increasingly-wealthy emerging regions.

The City certainly expects Unilever’s bottom line to pick up momentum in the near term, a 15% rise predicted for 2017 and up from 6% last year. And another double-digit increase, this time by 12%, is pencilled-in for 2018.

While the FTSE 100 goliath deals on a forward P/E multiple of 23.5 times as a result, I reckon this is a fair price given Unilever’s exceptional growth profile.

The post 2 super growth stocks that could make you rich appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Gooch & Housego. 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.

Growth on track

In today’s half-year trading update for the period to 31 March, the firm says that trading has been good and “full–year trading remains in line with management’s expectations“, which is encouraging. To gauge what those expectations may be, I think it’s worth looking at what City analysts following the company think. Their estimates average out to growth in earnings per share of 10% for the year to September 2017 and 15% for 2018.

The firm points to high-reliability fibre couplers for undersea cables, precision inspection equipment and critical components used in microelectronic manufacturing as areas driving sales within the telecommunications and industrial sectors. On 31 march the company’s order book was up more than 70% compared to a year ago, at £66.6m.

Organic and acquisitive growth looks set to power further returns for investors as the company continues to invest in research and development (R&D) in pursuit of what chief executive Mark Webster describes as a “strategy of diversification and moving up the value chain.”

A record of rising earnings

At first glance, the firm’s valuation is not low, but the company has a steady record of growing its earnings over the last five years, which can often justify a higher rating.   

At today’s 1,247p share price the forward price-to-earning (P/E) ratio is just over 23 for the year to September 2018 and the forward dividend yield runs at a little over 0.8%. Forward earnings look set to cover the payout more than five times, which suggests the directors see plenty more opportunities to invest in growth ahead, rather than putting cash inflow into the dividend.

Meanwhile, the share price of light emitting diode (LED) lighting solutions specialist Dialight (DIA) has burst upwards by more than 150% since February 2016. Once again, the main driver of this movement in the share price is growth in earnings of the underlying business.

A plan for growth

City analysts following the firm expect earnings to expand by 36% during 2017 and by 41% during 2018.  In February, chief executive Michael Sutsko explained that the firm is “making good progress with our three-year plan to return to sustainable profit growth.”  He says the company has rebuilt its operating model and is now pursuing “growth initiatives to capture the long-term opportunity in LED lighting.”

At today’s share price around 988p, Dialight trades with a forward P/E ratio of just over 19 for 2018 and the forward dividend yield runs around 1%. Forward earnings should cover the payout more than five times, so I assume the directors see more value for shareholders by reinvesting incoming cash flow for growth than in paying cash out with the dividend.

Strong trends

Both these firms exhibit strong upward trends in operations and their share prices. I reckon when the economy seems stable and decent companies are trading well with optimistic outlooks, it can pay to go with them, rather than hunting for ‘seconds’ in the bargain bin.

The post 2 tempting growth shares I’d buy in April appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has recommended Gooch & Housego. 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.

Looking ahead, it’s expected to record an increase in its bottom line of 18% in the current year, followed by a further rise of 29% next year. Clearly, this rate of growth represents a step change for Vodafone following the fall in its bottom line of 9% last year. It seems to be at least partly because of the investment that Vodafone has made in its network and also in acquisitions across Europe. And with the Eurozone experiencing a period of quantitative easing, Vodafone’s vast exposure to Europe could be about to gain a boost for not just the next two years, but over the long run too.

As a result of this, now seems to be an opportune moment to buy a slice of the business. Its yield of 5% marks it out as a top-notch income play, which now has excellent capital growth prospects in addition to a superb yield.

Growth already pencilled-in

Also posting share price gains of late has been Gooch & Housego (LSE: GHH), with the photonic technology provider recording a rise in its valuation of 18% in the last year. While this has been good news for the company’s investors and Gooch & Housego has been able to grow its earnings by at least 11% per annum in the last three years, it now appears to be rather expensively priced. As such, its share price could come under a degree of pressure.

In fact, Gooch & Housego now trades on a price-to-earnings (P/E) ratio of 22.3 and while it’s forecast to post further growth in each of the next two years, its earnings are set to rise at a rather modest pace. For example, growth of 2% this year and 6% next year is being pencilled-in by the market and this may fail to act as a positive catalyst on Gooch & Housego’s share price over the medium term.

Geographical diversification

Meanwhile, recruitment and staffing solutions specialist Impellam (LSE: IPEL) could deliver exceptional returns in the long run. A key reason for this is its high degree of geographical diversification, with it operating in the UK and rest of Europe, Asia, Africa and North America. This means that its profitability is unlikely to be hit hard by weakness in one particular region and with there being a real possibility of Britain leaving the EU, geographical diversification could be a useful ally in the coming months.

With Impellam forecast to increase its earnings by 13% next year, investor sentiment could improve. That’s especially the case since it trades on a price-to-earnings growth (PEG) ratio of 0.5, which shows that there’s considerable upside potential.

The post Are Vodafone Group plc, Gooch & Housego plc and Impellam Group plc set to post stellar returns? appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Vodafone. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.