However, I’ve stumbled across three stocks which I believe have the potential to generate tremendous returns for investors. They might not double in value, but I think these are some of the market’s best growth stocks.

Beating the market

One of the qualities I look for when assessing the future potential of any business is how it has performed in the past.

Since the end of the first quarter of 2016, shares in Harwood Wealth Management (LSE: HW) have returned 82% excluding dividends, compared to just 23% for the FTSE 250.

The last time I covered the company, it had just reported its numbers for the six months to the end of April, which showed an increase in assets under management (AUM) of around of a third. Following this update, analysts have reiterated their full-year growth forecasts. The City is expecting EPS growth of 463% for 2018 (giving a full-year P/E of 23.9) and 27% for 2019 (forward P/E of 18.8). If AUM continue to expand, I believe Harwood could surpass City growth targets for 2019. 

With approximately 24p per share in cash on the balance sheet, the stock is trading at a cash-adjusted 2019 P/E of just 16. In my opinion, this is far too cheap for for the wealth management group.

One of a kind 

My next stock with multi-bagger potential is Breedon (LSE: BREE). What I like about this business is that it already has a strong track record of creating value for investors. Over the past five years, through a combination of acquisitions and operational improvements, net profit has grown at a compound annual rate of 61%. This expansion has helped the company’s shares add 170% since mid-2013.

Breedon owns and operates over 300 quarries and concrete plants throughout the UK and Ireland. These assets have high barriers to entry — it’s not easy to start a new quarry in the UK. Breedon, therefore, has a virtual monopoly in some areas of the market.

With monopoly control of some parts of the UK aggregate market, Breedon should be able to continue to grow at a rapid pace for many years to come. With this being the case, I believe it is worth paying the current multiple of 15.8 times forward earnings for the shares.

Rising output 

My final potential blockbuster is Kaz Minerals (LSE: KAZ). Last week, after several years of restructuring the business, it declared its first dividend since 2012. This announcement has helped restore confidence among investors who have been questioning the group’s decision to pay $900m to acquire a Russian copper project from Roman Abramovich. 

Despite shareholder opposition, management believes this deal has legs and is a vital part of the group’s long term growth strategy. I’m inclined to side with management on this one. Over the past five years, executives have proven they know how to handle the business. After investing $3.5bn in two major copper mines, Bozshakol and Aktogay in Kazakhstan, production in 2016 leapt 73% to 140,000 tonnes and is projected to hit 300,000 tonnes for 2018. 

For the full year, analysts have pencilled in EPS of $1.40 giving a P/E of 5. In my opinion, the stock is worth significantly more. 

The post 3 stocks I believe could double your money 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.

However, it’s in the small-cap arena where the market’s best growth stocks usually reside. But due to the risks of investing in small-caps, investors often overlook this part of the market.

Nevertheless, there’s one small-cap I’ve recently stumbled across, which looks to be a hidden growth champion.

Hidden growth stock

Since its IPO in March 2016, Harwood Wealth Management (LSE: HW) has wasted no time making an impact on the market. The UK-based financial planning and discretionary wealth management business has a market capitalisation of only £106m, but it already administers £4.3bn of assets, up by around a third since the end of April last year.

Asset growth is going straight to the bottom line. The wealth management business has high operational gearing, which means there are high fixed costs to begin with, but once profitability reaches a certain level, and costs are covered, margins on every additional £1 of revenue are significant. For example, Harwood’s net profit margin was just 1% in 2016. Thanks to revenue growth and economies of scale, City analysts expect the group to report a net margin of 8.3% this year. 

To capitalise on its existing size and established business base, Harwood is growing through acquisition. For the six months to the end of April, the firm spent £10.9m buying nine other wealth management businesses. Not only have these deals boosted profitability, but they’ve also given it more financial firepower to chase even more acquisitions. 

Considering the group’s aggressive growth plans, it is no surprise City analysts expect it to report earnings per share growth of 463% for 2018 (giving a full-year P/E of 23.6) and 27% for 2019 (forward P/E of 18.5). In my opinion, this growth makes the stock highly attractive, and I see no reason why the business cannot continue to grow at a similar rate for many years to come. 

It is this growth potential, coupled with the stock’s modest valuation that leads me to conclude that Harwood could be one of the best growth stocks around. 

Bigger is better?

 If it continues on its current growth trajectory, it could one day end up on a par with FTSE 100-listed wealth management group St James’s Place (LSE: STJ). 

St James’s is going from strength to strength. After a strong 2017, new clients continued to flock to the firm’s offering during the first quarter with net inflows jumping 31%, to £2.6bn. 

Not only does St James’s have a solid reputation for investing clients’ money successfully, but the group also looks after its shareholders. As net profit has steadily increased, St James’s dividend per share has risen at an average rate of 32% over the past five years. City analysts are expecting at least double-digit payout increases for the next two years as earnings per share continue to expand (EPS growth of 74% for 2018 and 18% for 2019). Current projections suggest yields of 4.3% and 5% are on offer for the next two years. 

A forward P/E ratio of 22 times may seem demanding, but I reckon this is about right considering the group’s potential and historical growth.

The post Why I’d buy this hidden growth stock and this FTSE 100 growth star appeared first on The Twelfth Magpie.

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• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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.

It’s usually a good thing to hear that a firm’s performance is ahead of expectations, because news like that can drive decent share price gains as a stock moves to adjust for higher earnings or a better outlook. Sometimes the firm’s valuation re-rates up too, which can drive share prices higher still. However, in this case I reckon investors are looking for faster progress with earnings.

Fast growth

Harwood is growing organically and by acquisition. The growth strategy appears to be working well judging by today’s numbers, which cover the trading year to 31 October 2017. Assets under influence increased 81% compared to the year before to £3.8bn, which is a lot of other people’s money for the firm to earn its living from. Revenue increased 123% and net cash from operations shot up more than 54% to £3.7m. The laggard in these results is profit after tax, which came in at £0.7m, well below the cash-flow figure.

I reckon it’s normal for earnings to be behind the curve when a company has been highly acquisitive. During the period, Harwood spent £2.3m on seven acquisitions and also raised £10m via a placing in April to fuel the ongoing acquisition strategy. Such activity can lead to murky accounts, and the directors attempted to peer through the haze by offering EBITDA figures that look at adjusted earnings before interest, taxation, depreciation, amortisation and exceptional costs. EBITDA increased by 59% to £4.3m suggesting that underlying earnings are on track.

The full-year dividend is 3.24p leading to a yield just over 2% at a share price around 140p. That’s not too bad for a fast-growing firm, and I think current weakness in the share price could end up being a good opportunity to hop onto a compelling growth story with Harwood.

Trading well with a positive outlook

I reckon Harwood Wealth Management would sit well in a portfolio with its larger financial services cousin Legal & General Group (LSE: LGEN). The company deals in life assurance, long-term savings, investment management and general insurance, and things have been going well, which reflects in solid share-price progress over recent years.

The directors describe 2017 as “a record year,” and reading through the December trading update I get the impression that the company is firing hard on all four cylinders. The outlook statement is positive too, and the directors emphasise that they think the firm is well set up to take advantage of ongoing global opportunities.

With such a rosy outlook we might expect a punchy valuation, but I’m not seeing that. Today’s share price around 274p leads to a forward price-to-earnings rating of just over 10 for 2019, and the forward dividend yield is more than 6%. I think Legal & General’s operational and share-price momentum looks set to continue.

The post One super growth stock I’d buy alongside Legal & General Group plc 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.

With a market capitalisation of only £100m, Harwood Wealth Management (LSE: HW) flies under the radar of most investors. However, if the company’s returns since its initial market offering are anything to go by, investors shouldn’t pass up this exciting growth opportunity.

Growing through acquisitions 

Harwood was admitted to trading on the Alternative Investment Market on 29 March 2016, and since then shares have gained 60.3% excluding dividends.

These gains could be just the start for the fast-growing wealth management business. Indeed, today the company announced its interim results for the six months ended 30 April 2017 and all metrics showed strong growth. For the period, assets under influence rose 94% to £3.3bn, revenue grew 53% to £7.8m, and gross profit rose 63% to £4.9m. 75% of revenue is recurring. For the six-month period, the company generated £1.5m in cash, and at the end of the half, the company had £19.8m of cash on the balance sheet, a mixture of both cash generated from operations and a successful placing at the beginning of 2017 which raised £10.4m.

Harwood is growing through a mix of both organic growth and acquisitions. During the fiscal first half, the company acquired four smaller firms for an aggregate consideration of £2.1m to boost growth. One of these acquisitions, Network Direct was responsible for £1bn of assets under influence growth, the rest of the acquisitions accounted for growth of £0.3bn, and £0.3bn came from organic growth as well as market gains.

For the fiscal first half, Harwood generated a pre-tax profit of £330,000 and earnings per share of 0.27p. For the full year, City analysts had expected the group to report earnings per share of 4.9p on a pre-tax profit of £3.6m. Based on the current run rate it’s difficult to see how the company can meet this target.

Still, it looks as if management is not going to rest just yet. According to today’s results release, since the period end, the company has spent a further £585,000 on two additional acquisitions and is evaluating 11 others. With a cash balance of nearly £20m, Harwood has plenty of firepower to pursue further consolidation in the wealth management sector, and it seems vendor’s are actively approaching the group with proposals to sell. Management notes in today’s release that there has been a “greater number of potential offenders approaching us directly” since it became a public company.

Further growth ahead

As City targets for growth are uncertain, it’s difficult to place a value on shares in Harwood today. However, the cash-rich consolidator is bound to achieve steady growth for investors as it consolidates the highly fragmented wealth management sector. What’s more, as the firm grows it should be able to extract significant synergies from the businesses it acquires thanks to economies of scale, accelerating growth.

Overall, if you’re looking for a small-cap that has the potential to grow rapidly over the next few years in a well-established market, Harwood could be a perfect choice.

The post This forgotten small-cap has huge growth potential appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Rupert Hargreaves 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.