Great operational progress

The firm’s operational progress is the catalyst for the move up in the share price. Revenue is up around 300% since the company arrived on the stock market and operating cash flow runs close to £8m from almost nothing. The firm develops software robots to automate routine back-office clerical tasks and blue-chip customers are snapping it up. The potential in the market is huge, which reflects in Blue Prism’s robust revenue projections.

However, there’s a problem. Speculation has driven the share price way ahead of events and that’s why we are seeing such a vicious correction now. Even at 1,550p, the price-to-forward-sales ratio is an eye-watering 18 for 2019, and no-one is suggesting that the company will turn a profit next year – profits could be years away if they arrive at all.

Don’t get me wrong, I think the underlying business is performing well and the firm seems to be capturing accelerating sales from a rapidly expanding market. However, with projected revenue for 2019 running close to £86m and the market capitalisation at £1.14bn, I think there is a significant disconnection between operational progress and the valuation.

Mark Minervini – one of the modern era’s most successful stock traders– would probably describe Blue Prism as a market leader because it was one of the shares that led the charge in the bull market we have just enjoyed. However, he cautions that each new bull market tends to start with new leaders and the old outperforming stocks rarely lead in the next bull market after a significant correction in the market.

Well placed for accelerating growth

Recent weakness in the market suggests we could be in for a significant correction, so maybe now’s a good time to look for new emerging growth stories and I’d like to put forward for consideration Volution Group (LSE: FAN). The company designs, manufactures and distributes ventilation products to the residential and commercial construction markets in the UK and northern Europe.

That’s not a business that is as sexy as Blue Prism’s, but I reckon we need to look at new sectors to find the next leaders. I’m bullish on the world’s economies after our 10-year crawl out of recession and austerity following last decade’s financial crisis, and it makes sense to me that firms doing useful things will be in demand, so Volution fits the bill.

And today’s full-year results demonstrate that progress has been good. Revenue rose more than 11% compared to the previous year and adjusted earnings per share moved nearly 7% higher. The directors expressed their confidence in the outlook by pushing up the total dividend by 7%.

After completing four acquisitions in the period, I think the firm is well-placed to grow organically from here. Best of all, the forward price-to-earnings ratio sits below 11 for 2019, leaving plenty of room for a valuation re-rating if earnings take off as hoped. I think the stock is attractive.

The post Forget Blue Prism, this growing small-cap could be a leader in the next bull run 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?

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.

Show me the profits

I have to admit, there are aspects of Purplebricks’ business model that look interesting, to me. Whereas traditional estate agents charge a fee of around 1%-3% to sell a property, Purplebricks charges just £849, or £1,199 for London properties. Furthermore, the cost structure of the business also looks attractive, as unlike traditional estate agents, it doesn’t require an extensive, a fixed-cost high street estate to sell properties. 

However, the key issue stopping me from investing in the company right now, is the lack of profitability. You see, while Purplebricks’ revenue increased substantially last year from £18.6m to £46.7m, the company generated a net loss of £3m. City analysts forecast a further increase in the top line to £96.8m this year, but another sizeable net loss of £14.5m is anticipated.

After losing money on unprofitable businesses in the past, one of my general rules these days, is to refrain from investing in companies until they become profitable. Sure, this means that I may potentially miss out on some big gains, but at the same time, I’ve found this approach helps me reduce the chances of investing in a dud. At the end of the day, successful investing is as much about limiting big losses as it is about making large gains.

Furthermore, with a current market cap of £960m, Purplebricks’ valuation doesn’t leave a huge margin for error. With that in mind, I’ll be avoiding shares in the hybrid estate agent for now.

A lower risk alternative?

One company that is generating robust profits right now is £392m market cap Volution Group (LSE: FAN), a UK-based supplier of ventilation products to the residential and commercial construction markets in the UK and Europe. Ventilation may seem like a boring business, but that doesn’t mean the sector isn’t capable of generating attractive investment opportunities. Indeed, Volution Group shares have risen nearly 30% in the last year alone.

The ventilation specialist released its final results for the year to 31 July today, and the numbers look solid. Revenue for the year increased 19.8% to £185.1m, while adjusted profit before tax rose 10.3% to £34.6m. Adjusted basic and diluted earnings per share came in at 13.6p, a 7.9% rise on FY2016, and the company declared a full-year dividend of 4.15p, a 9.2% hike on last year’s payout. Chief Executive Ronnie George gave an upbeat assessment of the company’s outlook, stating: “The Board is confident of delivering good progress in this financial year.”

Volution shares currently trade on a P/E of 14.8, with a dividend yield of 2.1%, metrics which look attractive in my view, given the company’s momentum. With the share price trending upwards over the last year, I believe further gains could be on the horizon.

The post One attractive growth stock I’d buy ahead of Purplebricks Group plc 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?

Edward Sheldon 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.

The stock — which provides ventilation solutions to the residential and commercial construction sectors — was last unchanged from Thursday’s close and still within striking distance of recent record peaks around 200p.

Volution announced that revenues during the 12 months to July 2017 clocked in at £185m, up 20% year-on-year, or 15% at stable exchange rates. The company saw organic revenues increase 7.6%, it advised, with 13% the result of new acquisitions.

The Crawley business declared that “organic growth was helped by a strong performance in the Nordics, where revenue for the year grew by 5.1% on a constant currency basis, and in our UK Residential New Build sector, where revenue grew by 8.3%, along with continuing growth in the order book.”

A positive outlook

Chief executive Ronnie George unsurprisingly struck an upbeat tone following last year’s results, commenting that: “I am delighted with the progress that the Group has made during the year. The challenges in UK Residential RMI, most notably in the public sector, have continued in the year just ended but we have delivered good organic growth in our other market sectors.”

While uncertainty continues in the UK economy as a consequence of plans to leave the EU, “our increasing market and geographical diversity gives us confidence for the year ahead,” he added.

George noted that Private RMI had returned to growth in the second half of the year, helped by the introduction of various sales and product initiatives. And Volution has further developments under way for the current financial period straddling both the public and private market sectors.

The City expects it to maintain its upward path given these promising signals, and to follow up the 8% earnings rise predicted for fiscal 2017 with an additional 6% advance in the current period. And these projections mean the company offers plenty of bang for your buck, its forward P/E ratio of 13.8 times falling below the widely-considered value yardstick of 15 times.

I reckon this is a bargain given the excellent sales opportunities created by the company’s broad market and geographic footprint, not to mention its proven success on the M&A front.

Past its best

In fact, these qualities make me much more bullish on the ventilation expert’s long-term earnings potential than that of Tesco (LSE: TSCO).

The number crunchers do not share my sense of dread however, and are predicting earnings rises of 44% and 31% in the years to February 2018 and 2019 respectively. But I am not convinced Britain’s biggest retailer has what it takes to post sustained, and stratospheric, bottom-line growth as the fragmentation in the grocery market intensifies.

Indeed, while latest Kantar Worldpanel numbers showed Tesco’s sales up 2.3% in the 12 weeks to July 16, the continued progress of Aldi and Lidl pushed the firm’s market share 0.5% lower year-on-year to 27.8%.

While a forward P/E ratio of 18.2 times may not be greatly appealing on paper, a sub-1 PEG of 0.4 would suggest Tesco provides decent value for money. I am not convinced, however, given the fragility of current earnings forecasts, and I for one won’t be diving into the supermarket any time soon.

The post A hot growth and value stock I’d always buy over Tesco plc appeared first on The Twelfth Magpie.

More reading

• Here’s what a surging Tesco share price has done to £10,000 invested 5 years ago
• Are Tesco shares losing their momentum?
• Tesco’s share price drops 2% on Q1 trading miss. What’s gone wrong?
• As Tesco shares dip on Q1 results, is this a brilliant time to buy?
• How much might £19,999 in a Cash ISA be worth in 2036?

Royston Wild 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.

A boring business but worth the money 

Volution might seem like a boring business, but such businesses tend to produce the best results, thanks to specialisation and a lack of competition. Volution is no different. Over the past five years, the company’s revenues have grown at a compound annual rate of around 12%, and the operating margin has averaged around 10% for the period. Also, very little in the way of capital spending is required for the business, so free cash flow is robust. For fiscal 2016 free cash flow per share was 12.4p.

This slow and steady growth is worth paying for. While the firm might not have the allure of some high-growth tech stocks, it knows its market well, and steady growth with a healthy cash flow is the name of the game. 

The shares currently trade at a forward P/E of 14.1, which might look expensive, but on other metrics the group is cheap. Specifically, on a price-to-free cash flow basis, shares in the company trade at a multiple of 12.6, a 35% discount to the wider sector average of 19.4. As Volution’s growth continues, this valuation gap should narrow as the market realises the company’s potential.

Unlocking value 

Shares in Stobart Group (LSE: STOB) have added 89% excluding dividends over the past 12 months and even after this explosive rally they still look cheap compared to projected earnings growth rates. City analysts have pencilled-in earnings per share growth of 76% for the fiscal year ending 28 February 2018 after the company sold off its Eddie Stobart Logistics business during April. 

Now the management has divested this asset, the company can concentrate on the management of London Southend airport and the group’s biomass business. While the shares are trading at an estimated forward P/E of 21.1, considering the group’s rapid earnings growth, they trade at a PEG ratio of 0.5. A ratio of less than one indicates that shares offer growth at a reasonable price.

Like Volution, Stobart is a cash cow. According to a recent update, management believes that between the end of March and June this year, the company generated £160m in cash to support its dividend and invest across the business. A significant portion of this was produced from the Stobart Logistics listing, and the sale and leaseback of eight aircraft for a total of £46.4m also helped. The realisation of value from these assets gives the group firepower to accelerate growth in other parts of the business, and that should underpin further earnings expansion.

The post These 2 growth stocks could be too cheap to pass up 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.

Volution Group  

Ventilation may not be the sexiest industry on the planet, but that doesn’t mean the industry isn’t capable of generating investment opportunities. Volution Group (LSE: FAN) is a UK-based supplier of ventilation products to the residential and commercial construction markets in the UK and Europe, and the £394m market cap company has bold plans to grow through a combination of organic growth and selective acquisitions.

A glance at the income statement suggests that the company is doing all the right things, with revenue ticking up steadily over the last five years, from £88m in FY2011 to £155m in FY2016, a compound annual growth rate (CAGR) of a healthy 12%. And with analysts forecasting a top line of £182.5m this year, growth of an even higher 18% may be on the cards. 

Interim results announced in March were impressive, with revenue growing 19.3% (boosted largely by acquisitions), adjusted operating profit increasing 7.7%, and adjusted basic and diluted EPS rising 7.4% to 6.5p (constant currency figures). The company stated that despite uncertainty in the UK following the Brexit result “we remain confident in delivering further good growth in 2017 in line with our strategy.“
 
Full-year earnings of 13.6p are forecast, meaning that at the current share price, the stock trades on a forward looking PE ratio of 14.4, which seems reasonable. A forward-looking dividend yield of 2.1% is also on offer. After falling heavily after the Brexit vote last June, Volution’s share price has rebounded strongly, however, I reckon there could be further to run, especially if the share price can clear its previous highs and break into blue-sky territory.

Trifast

Also offering strong potential is industrial fastenings specialist Trifast (LSE: TRI). The £267m market cap company designs, manufactures and distributes mechanical fasteners for a variety of industries and has impressive geographical diversification, with sales in the UK, Europe, the US and Asia.
 
The financials here look excellent, with revenue growing every year over the last five at a CAGR of 11% and operating margins surging from 4.8% five years ago to 9.6% for FY2017. Earnings have risen 70% in the last three years alone, and the company has built up a pile of cash, with cash of £25m on the books as of 31st March.
 
Preliminary FY2017 results released earlier this week saw group revenue up 7%, profit before tax up 15.4% and underlying diluted earnings per share up 12.9% (constant currency figures). Management sounded upbeat about the future, stating “the current financial year has started well and, with a robust pipeline in place, there is no indication this will change.” 
 
Trifast currently trades on a forward-looking P/E of 17.8, so isn’t the cheapest small-cap around, however I believe the company’s impressive track record justifies the valuation. In my opinion, Trifast looks to be a high quality company and I reckon it could be one of those stocks that rewards shareholders handsomely over the long term.

The post Two growth stocks for ambitious investors 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?

Edward Sheldon 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.

Shares of bonding and adhesive specialist Scapa Group (LSE: SCPA) climbed by 8% this morning, after the firm said that sales and trading profit should be ahead of expectations for the year ending 31 March.

It’s the second upgrade to profit guidance in five months — expectations were also lifted in November, at the time of the group’s half-year results.

Scapa’s business is making specialist adhesive tape for industrial and healthcare applications. This may sound like a dull business, but the share price has risen by 466% over the last five years and by 18% so far in 2017.

However, today’s statement makes it clear that exchange rate movements have made a big contribution to this year’s growth. Although sales in the healthcare division rose by 16.5% last year, only 5% of this was due to increased trading. And some of this growth was the result of an acquisition made in May 2016.

My reading of this is that underlying healthcare sales growth is less than 5%. If exchange rates stay flat, then this year’s comparable figures won’t benefit from a currency boost and could be much lower.

That’s not to say Scapa isn’t a good business. Cash generation is impressive. Its net debt is expected to have fallen from £29m to £16m during the second half of last year as the firm repays borrowings used to fund the £28.3m purchase of EuroMed in May.

Scapa stock now trades on a forecast P/E of about 27, with a prospective yield of 0.6%. That’s not cheap, but recent earnings upgrades suggest to me that Scapa may beat expectations again in 2017/18.

A breath of fresh air

Ventilation firm Volution Group (LSE: FAN) sells the kind of fit-and-forget product that no modern commercial building or home can manage without. Brands you may be familiar with are Vent-Axia and Manrose, but Volution has 13 operating businesses in total, serving a mix of countries and business sectors in northern Europe.

Companies whose products are dull but essential can often make great investments. Volution certainly seems to have promise, in my view. The firm’s stock has risen by 33% since its flotation in June 2014, and it now has a market cap of £382m.

The group appears to be expanding through a mix of acquisitions and organic sales growth. This seems to be working well. Volution’s adjusted earnings per share rose by 14.1% to 12.6p last year. This rate of growth was maintained during the first half of this year, when adjusted earnings rose by 14.1% to 6.54p.

These figures match the firm’s free cash flow almost exactly. My calculations indicate that free cash flow before acquisitions was about 12p per share last year, and about 6.5p per share during the first half of this year.

I’m always encouraged when a company’s free cash flow closely matches its earnings, as this suggests that its profits are genuine cash profits that can be used to fund growth and pay dividends.

Volution shares currently trade on a forecast P/E of 14 with a prospective yield of 2.1%. Although the group would be exposed to a major downturn in the European construction market, these figures look attractive to me. I believe further gains are quite likely.

The post 2 growth stocks you can’t afford to ignore any longer 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?

Roland Head 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.