However, there are some which appear to have significant tailwinds for the long term. Here are two prime examples which could be worth buying and holding for a long period of time.

Future potential

Reporting on Tuesday was sweeteners producer Purecircle (LSE: PURE). The company was able to deliver double-digit growth in the first half of the year, with sales up 13.3%. It experienced upbeat performances in both the US and Europe, with gross profit increasing to $19.7m.

However, gross margin fell by 3.6 percentage points versus the same period of the prior year. This was largely due to negative currency effects, an unfavourable sales mix, and the transition to a more expensive leaf variety that’s set to yield higher returns in the future.

Looking ahead, demand for natural sweeteners in the food and beverage market is on the up. Consumers are becoming increasingly health conscious and this means that they may turn to alternative products over the long run. As such, its future appears to be positive.

With Purecircle forecast to grow its bottom line by 49% this year and by a further 69% next year, it appears to offer a strong growth outlook. Since its shares trade on a price-to-earnings growth (PEG) ratio of just 0.8, they appear to offer excellent value for money. As such, now could be the perfect time to buy in for the long run.

Diverse business

Also offering growth potential over the long run is fellow ingredients specialist ABF (LSE: ABF). The company has a solid track record of growth while its range of operations mean it’s a relatively well-diversified entity. Certainly, in recent years its retail clothing arm Primark operation has become the main focal point of the business. But with a range of other divisions, it continues to offer relatively stable return potential.

With ABF forecast to grow its bottom line by 10% in the next financial year, the company appears to have a solid growth outlook. Furthermore, with its successful retail division focused on the value segment, alongside growing a US business, it could become increasingly popular if the performance of the UK economy comes under pressure. In fact, in the last financial crisis, Primark won customers from mid-tier operators, and the same could happen in the next few years. Inflation is already relatively high and consumer spending could be squeezed if it remains above wage growth.

As such, ABF could prove to be a strong option for the long run. Its risk/reward ratio seems to be enticing, with a PEG ratio of 1.9 seemingly offering fair value for money given the level at which the wider index trades.

The post Two growth stocks I’d buy and hold for 20 years appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended Associated British Foods. 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 stock was last 4% lower on the day, retreating further from September’s 28-month tops, above 480p per share. However, this is reflective of mere profit taking rather than signs for concern as PureCircle’s market value has almost doubled since the start of the 2017.

The stevia sweetener producer advised that revenues during the 12 months to June 2017 fell 14% year-on-year to £118.9m, and this pushed operating profit 47% lower to £17.6m.

PureCircle was whacked by the US Customs & Border Protection, placing the firm on its Withhold Release Order (WRO) list. That saw its products banned for import last year while allegations that they were produced by forced labour in China were being investigated.

The ban was lifted in January, but the firm advised that “the impact of this WRO on our business was significant and continues to be felt today,”  and that it will take time to build up US momentum again in a market generated a third of its total sales in 2016.

On the right track again

While the first half result was disappointing (if not surprising), there was still  plenty to take away from PureCircle’s release. Sales outside the US increased by a healthy 8% during fiscal 2017, illustrating the strength of global demand for stevia products.

And the Malaysian company continued to invest heavily last year to underpin future sales growth. It invested $42m it its stevia refinery in Malaysia, and the huge sums it has dedicated to product R&D saw 124 new products hit the shelves last year.

With sales of the sweetener booming across the globe, and the troubles it experienced in the States now behind it, I believe PureCircle can look forward to exceptional earnings growth in the years ahead. And City analysts have predicted a 130% bottom-line rise in the current fiscal year alone.

A forward P/E ratio of 62.9 times may look unappealing on paper, although a sub-1 PEG reading of 0.5 suggests the business is actually attractively priced relative to its growth prospects. I reckon PureCircle is a very attractive investment destination.

Upping the pace

I’m also convinced that demand for The Gym Group’s (LSE: GYM) cheap fitness passes should continue to boom as growing restraints on Britons’ spending power worsens, and the keep fit craze drives ever-more people onto the treadmill.

The Guildford-based business saw revenues shoot 19% higher during January-June to £42.8m, and the low-cost operator continues to aggressively expand to bolster sales growth. Last week, the group snapped up 18 gyms from Lifestyle Fitness for £20.5m, and plans to open 20 new sites under its organic rollout programme this year alone.

Against this backcloth, City brokers predict earnings expansion of 34% and 19% for 2017 and 2018, respectively, resulting in a prospective P/E rating of 28.4 times and a corresponding PEG multiple of 0.8. I reckon The Gym  Group is also worthy of serious consideration at the present time.

The post 2 monster growth stocks in the making 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 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.

A challenging period

PureCircle’s first-half performance was negatively impacted by the detainment of shipments by US Customs Border Protection (CBP). Since the US contributes around a third of the company’s sales, the impounding of shipments and inclusion of its name on the Withhold Release Order (WRO) means that it has inevitably posted a fall in sales. This has filtered down into profitability, with group gross margins also expected to be lower. As such, net profit is forecast to be lower compared to the first half of the prior year, although margins are expected to recover once the issue is resolved.

In terms of a resolution, PureCircle has worked extensively with the US CBP and has provided tracking documents and related data in response to their detailed requests. A decision from the CBP is now awaited.

Strong performance, but lacking appeal

In terms of the performance of the company in other markets, the first half of the year was impressive. It has achieved strong growth in Europe and Latin America, which represent over half of its sales. In the last six months there have been over 100 launches that contain PureCircle products, which provides an indication that demand for its products is increasing at a rapid rate.

Despite this, PureCircle is a stock I’m avoiding. Even after today’s share price fall, its valuation remains excessively high. Certainly, there’s growth potential within the business and further launches are likely over the long run. However, given its falling profitability and the risk posed by the US CBP issue, a price-to-earnings (P/E) ratio of around 32 is just too difficult to justify.

A better option?

In fact, even a relatively consistent and well diversified foods producer such as ABF (LSE: ABF) offers superior value to PureCircle. ABF has a P/E ratio of 22.6, which indicates that it has a wider margin of safety. Its business operates across the globe and is multi-faceted, with a retail operation providing significant diversification for its more traditional food production operations.

Furthermore, ABF is forecast to grow its earnings by 12% in the current year, while PureCircle is expected to make a net loss for the year of $2m. As a result, ABF seems to be a much better buy, while PureCircle is a company to avoid. Even if the US CBP issue is resolved swiftly, its high valuation means that it lacks sufficiently high potential rewards.

The post Why I’m avoiding PureCircle Limited shares after today’s 15% drop appeared first on The Twelfth Magpie.

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Peter Stephens 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.

Bango (LSE: BGO) might have a memorable name, but its share price performance over the past few years is something I’m sure many would like to forget. From a peak of 299p in March 2013, Bango shares have crashed by 69% to today’s 88.5p, and that includes a 5% fall on the day the firm released first-half results.

Mobile payments companies can be very profitable, but the problem at Bango seems to be that it’s not making any profit yet while some of its competitors are, and that will surely raise fears that it’s not going to end up as one of the winners in the race.

Today’s news was a bit mixed. In the first half of the year, end user spend was up 150% on the same period last year, to £46.17m, and a 39% rise in gross profit took that to £0.85m. Cash is perhaps a bit tight at £7.24m, and investors might be concerned to see it having fallen from £12.13m at 31 December 2015 — though the company seems happy that there’s enough to keep it going until it achieves profitability.

But broker Peel Hunt has apparently downgraded its stance on Bango and has a £1 price target on the shares. I think that might be a little harsh. After all, Bango handles payments for mobile apps including Pokemon Go, and that didn’t launch until after the reported period. With a market cap of £57m, Bango could be a small-cap with a big future.

A sweeter future?

With a market cap of around £530m, PureCircle (LSE: PURE) is a bigger company, but its share price performance has also been unimpressive — it’s down 50% in just over two years, to 310p, after a 6% drop today following the release of full-year results.

The maker of stevia products reported a 9% rise in sales to $138.6m, with operating profit up 90% to $32.4m. Earnings per share more than trebled to 8.49 cents, though net debt rose in the period to $52.9m. So why the share price fall?

Sales in the second half were lower than expected, due to delays in some launches and to actions by US Customs and Border Protection (who detained a number of shipments based on, apparently inaccurate, suspicions of the use of forced labour). With recent regulatory approvals for stevia products coming from India and Brazil, barriers to sales appear to be falling — and chief executive Magomet Malsagov reckons that: “Prospects for the business over the next 4 to 5 years are strong, and we are confident that as our sales continue to increase, we will report improved profitability.”

PureCircle is forecast to record a further 165% rise in EPS in the year to June 2017, and with markets for natural calorie-free sweeteners potentially huge in these increasingly obese days, a forward P/E of 19 (and a PEG of just 0.1) looks cheap to me. There’ll be volatility ahead for sure, but I can see PureCircle turning into a nice little investment.

The post Why are these small-cap shares plunging today? appeared first on The Twelfth Magpie.

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Alan Oscroft 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.

This news sent shares in Sainsbury’s 2.2% higher to 275.3 pence, whilst Morrisons gained 2.9% 185.0 pence, in afternoon trading.

Societe Generale believes that recent consolidation activity in the grocery market in Europe could spread to the UK, with a deal between Sainsbury’s and Morrisons being most likely to happen. A merger between the two is less likely, but even just a purchasing partnership could help to cut costs and improve margins.

Societe Generale also upgraded its rating on Sainsbury’s shares from “hold” to “buy”, and raised its target price from 260 pence to 315 pence. The broker said that its “strong differentiation” and “efficient marketing policy” meant that the supermarket has been more resilient than many had feared.

Also today, UBS said it expects the UK grocery market is past the point of peak disruption from the discounters. This confirms analysts at Cantor Fitzgerald, who earlier this month, suggested that the grocery market is close to the bottom of the cycle.

Although the worst seems to be over, trading conditions for the incumbent supermarkets remain difficult. Operating margins are now wafer-thin, as aggressive price competition have compressed them from 4-5% back in 2012. Food price deflation is reducing sales, causing both top-line and bottom-line shrinkage.

Morrisons’ recent sales data offer a glimmer of hope, as it was the only incumbent supermarket to return to sales growth. Sales in the 12 weeks to 24 May grew by 0.1%, according to data from analysis firm Kantar Worldpanel. Having benefited from the launch of its Match & More loyalty scheme and robust online customer growth, Morrisons needs to sustain this momentum.

Sainsbury’s differentiation and its relative outperformance means it is the best buy of the incumbent supermarkets. Its focus on quality and continued expansion on convenience stores has helped it to better defend market share. Although the dividend has been cut by 23.7%, Sainsbury’s still pays a prospective 4.0% dividend yield, and is covered by 2.0x earnings.

Its valuation on earnings is also relatively attractive. According to Societe Generale, shares in Sainsbury’s trade with at 11.0x 2015-2016 estimated earnings. This compares favourably to Morrisons and Tesco, which trade with at multiples on expected earnings of 17.3x and 27.7x, respectively.

PureCircle

PureCircle (LSE: PURE) produces stevia sweeteners, which are derived from the natural sweetness of the stevia plant. The global stevia sweetener market is seeing rapid growth, as companies seek to lower the sugar content in their products with healthy and natural substitutes.

Although the stevia market is highly competitive, PureCircle leads in product innovations by making its sweetener perform close to sugar in taste. This has helped it to secure a major deals, including one with Coca-Cola to supply stevia sweeteners for its lower-calorie Coca-Cola Life drink.

Ramping up production is expensive, and PureCircle may need additional capital to fund investments. With sky-high potential growth in the industry, its shares have a forward P/E of 98.2. But, analysts expect its forward P/E will fall to 32.1 in the following year, based on forecasts of 2016 adjusted EPS of 11.6 pence.

Investing in small caps is high risk, but potentially very rewarding.

The post Is It Time To Buy Underperfoming J Sainsbury plc, WM Morrison Supermarkets plc & PureCircle Limited? appeared first on The Twelfth Magpie.

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Jack Tang has a position in Sainsbury's. 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.