I’d describe today’s full-year figures as “stonking”. Revenue rose 56% compared to last year and adjusted diluted earnings per share shot up 48%. The company isn’t troubled by having any borrowings and the cash position put on a healthy 47% to £42.5m. The directors endowed the firm’s shareholders with a chunky 41% increase in the total dividend for the year.

Great performance, a full valuation

Indeed, total returns for shareholders have been robust from both capital gains and from dividend income. The one ‘catch’ for those considering entering a position in the shares today is the valuation. The forward-looking price-to-earnings ratio for the trading year to March 2020 is just under 35, but that does drop down a little to below 33 if you account for the cash pile – but that’s still a rich valuation.

Meanwhile, City analysts have pencilled in a modest-looking double-digit percentage increase in earnings for next year, suggesting today’s fireworks display in the figures may not be repeated as dramatically.

What’s been going so well? The company’s digital services business includes lifecycle development and support of customised services for government and commercial customers. Kainos reckons it is “the leading boutique partner” for Workday in Europe, responsible for implementing the US company’s Software-as-a-Service (SaaS) platform, such as in the areas of mobile healthcare and automated testing for the NHS and others.

Strong progress abroad

The directors point out in today’s report that the company has achieved nine consecutive years of revenue and adjusted profit growth, which they put down to success in winning projects with new and existing customers. Sales orders in the period rose 31% and the contracted backlog of orders increased by 10% to just over £122m, which provides good visibility for progress going forward.  

Around 19% of the firm’s business came from abroad with foreign revenues rising 44% in the period, suggesting Kainos is making advances rolling out its offering beyond UK shores. The outlook is positive and the directors think the firm’s operational progress is a decent platform for further growth from where we are now.

There’s a lot to like about the company, but I can understand investors being wary about the current valuation. It’s an old dilemma. By the time a firm has proved its performance credentials, the market is often well up with events. So is it best to buy shares in firms before they perform well? Maybe, but then we risk underperformance taking share prices lower. I’d handle Kainos today by attempting to buy the stock on dips and down-days, even though the valuation will likely remain full.

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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended Kainos. 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.

Despite these risks, the prospects for global banking group Santander (LSE: BNC) appear to be positive. The stock seems to trade at a low price given its improving financial forecasts. As such, it could be worth buying for the long term.

Turnaround potential

After experiencing a difficult couple of years, Santander now appears to be on the road to recovery. Tough trading conditions in key markets such as the UK and Brazil contributed to two years of falling earnings in 2015 and 2016. However in 2017, the bank was able to return to positive growth, with its bottom line rising by around 8%.

Looking ahead, further growth is expected in the current year and next year. Although earnings growth of 9% this year and 11% next year is not as high as it has been in the company’s past, it suggests that trading conditions are improving. It also indicates that the company’s strategy and focus on efficiency could be bearing fruit. This could mean that further growth is on offer over the medium term.

Low valuation

Despite the potential for improving financial performance, Santander continues to trade on a low valuation. For example, it has a price-to-earnings growth (PEG) ratio of just 0.9, which is low even in a banking sector that is not especially popular at the present time. Furthermore, with the stock having a dividend yield of 4.2% from a payout that is due to be covered 2.3 times by profit this year, its income prospects seem to be bright.

As such, and while the outlook for the global economy may be somewhat risky, Santander appears to offer a favourable risk/reward ratio. Therefore, now could be the perfect time to buy it.

Growth potential

Also offering growth at a reasonable price is digital services and platforms provider Kainos Group (LSE: KNOS). The company released a positive trading update on Monday which showed that its performance in the year to 31 March has been in line with market expectations.

Growth in its Digital Services division has been especially strong, with continued momentum across government and healthcare clients. Its Digital Platforms division has performed as anticipated despite constrained funding in the UK NHS continuing to impact on the short-term growth of the Kainos Evolve platforms.

Looking ahead, the company is forecast to post a 23% earnings rise in the current year, followed by further growth of 12% next year. This puts it on a PEG ratio of just 1.3, which indicates that it could have significant capital growth potential ahead. With it having no debt and strong cash generation, the stock appears to offer a worthwhile risk/reward ratio for the long run.

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Peter Stephens 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 software specialist has the wind in its sales with demand from both new and existing customers continuing to boom, and this was illustrated in half-year trading details released today.

Kainos declared that revenues increased 2% during the six months to September, to £41.4m, a result that pushed adjusted pre-tax profit 1% higher to £7.1m. What really grabbed the eye, however, was news of a demand surge for its ‘Software as a Service’ (or SaaS) bookings which shot to £5.3m from £1.5m.

And in a promising sign for future revenues, the Belfast-based firm said that sales orders almost doubled year-on-year, to £63.4m from £32.6m in the corresponding 2016 period, while its sales backlog leapt to £97.1m, up 43%.

Continental march continues

These interim results underline the exceptional progress Kainos is making both at home and abroad.

In Europe the business boosted the number of clients on its books in the first half to 17 from nine in the same period last year, and Kainos now sources 26% of total sales from international clients versus 19% previously. And the company opened new offices in Frankfurt and Copenhagen (on top of new premises in Birmingham) in the first half in a bold statement of intent.

Tech stocks with stonking momentum often carry a premium and Kainos is no exception. With City analysts predicting a 5% earnings rise in the 12 months ending March 2018 the business sports a forward P/E ratio of 29.8 times.

But I consider this to be a price worth paying given the scope for explosive profits growth later on (indeed, current forecasts points towards a 21% earnings explosion in fiscal 2019 alone).

Meanwhile, the company is also highly cash-generative (the amount of cash on the balance sheet swelled by almost a third in the first half, to £27.3m), providing it with plenty of ammunition to deliver its exciting growth plans.

The drugs DO work

Alliance Pharma (LSE: APH) is another share tipped by the City to enjoy improving earnings momentum beyond the current period.

During 2017, the medicines dispenser is anticipated to report a 2% earnings rise, and to follow this up with a 13% advance next year.

These bubbly predictions come as no surprise as the Chippenham company, much like Kainos, makes impressive progress in international markets.

Alliance Pharma advised in September that, as sales at its Kelo-cote and MacuShield brands jumped 52% and 67% during January-June, group revenues advanced 8% to £50.3m. It said that demand for these products jumped thanks to “a combination of distribution gains in new territories and growth in the rates of sale in existing outlets, stimulated by our increased marketing investment.”

And the business has plenty of financial firepower to keep pushing organic investment, not to mention embark on further exciting bolt-on acquisitions like that of Sinclair Pharma made back in 2015 (cash and cash equivalents jumped £1.8m during the first six months of 2017 to £9m).

These factors, allied to the defensive nature of the pharmaceuticals sector, makes Alliance Pharma a seriously good pick for growth hunters in my opinion. And an extrememly-cheap forward P/E multiple of 15.1 times seals the deal.

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Software star

Shares in software specialists Kainos (LSE: KNOS) have exploded back above the 200p marker in Wednesday business, the release of an encouraging trading update driving shares 6% higher on the day.

Kainos advised that it expects trading to be in line with expectations for the year to March 2016, before noting that market conditions in the public sector continue to improve. The firm added that “this is expected to result in a further gradual increase in opportunities across government departments”.

On top of this, Kainos advised it had signed a five-year deal with InTouch Health, a “telehealth” services provider. The move will see the company’s Evolve Integrated Care SaaS platform used in 1,500 hospitals across the US and Europe.

Broker Barclays Capital expects earnings to surge 12% in the current year before advancing an extra 9% in fiscal 2017. A P/E rating of 20 times may not be cheap, but I believe Kainos deserves serious examination from those seeking exceptional growth potential.

Fossil fuel fears

Engineering play Smiths Group (LSE: SMIN) also furnished the market with fresh trading details on Wednesday, although the market greeted the release with much less fanfare. Smiths Group advised that revenues slipped 3% during July-January, to £1.37bn, a result that sent pre-tax profit 9% lower to £189m.  The company’s shares were recently 2% lower from Monday’s close.

A robust performance from the company’s medical and detection divisions helped Smiths Group broadly meet broker estimates, although the results highlighted the ongoing pressures for its John Crane oil and gas division — sales here tanked 13% in the first half of the year.

City consensus suggests that earnings should slip 14% in the year to July 2017, resulting in a P/E multiple of 14.7 times. Although this reading is more than respectable on paper, I reckon the prospect of further weakness across its oil-based operations — a segment responsible for roughly 30% of total sales — makes Smiths Group a risk too far at the current time.

Set to correct?

Diversified miner Anglo American (LSE: AAL) has been one of the FTSE’s major chargers since the start of February, the business gaining 75% in value during the period as commodity prices have rallied.

But returning fears over the strength of the global economy — and more specifically concerns over the impact of Chinese economic rebalancing — has seen raw material values, along with market appetite for Anglo American and its peers, begin to slip lower again in recent days. The company’s shares were last dealing 1% lower from Tuesday’s close.

I have long argued that the rapid ascent of the mining and energy sectors has been build on dodgy footing thanks to the chronic supply imbalances across major commodity markets.

And with expectations of a 58% earnings dip leaving Anglo American on an elevated P/E rating of 28.7 times, I reckon the stock is in danger of a harsh price correction.

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Royston Wild has no position in any shares mentioned. 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.