These ‘hidden’ growth shares are up 300% (and there should be more to come)

The market just can’t keep these growth stocks down.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There are not many companies out there that have produced a return of nearly 300% for investors over the past five years. Many of those that have are now trading at rich valuation multiples, which look pricey compared to the growth these companies are expected to generate. 

However, Wincanton (LSE: WIN) and Photo-Me (LSE: PHTM) are two companies that don’t fit this mould. Over the past five years, shares in these businesses have returned 250% and 270% respectively, excluding dividends. Including dividends, returns are closer to 300% and what’s more, it looks as if this growth is set to continue. 

Room for further growth 

Both Wincanton and Photo-Me have been written-off by investors in the past, yet both have gone on to defy expectations. 

Should you invest £1,000 in BP right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BP made the list?

See the 6 stocks

For example, Wincanton plunged into a loss for 2012 and the firm’s weak balance sheet led to many investors writing-off the business. Five years on and things could not be more different. If the company hits City earnings targets for this year, earnings per share will have doubled from 13.3p for 2013 to 26.6p for the fiscal year ending 31 March 2017. At the same time, net debt has fallen from £131m to £32m. Net gearing has come down to 13%. 

Despite these improvements, shares in Wincanton are still cheap. The shares are trading at a forward P/E of 10.2 falling to 9.8 for 2018. Meanwhile, the business is valued at an enterprise value-to-earnings before interest, tax, depreciation and amortisation multiple of 3.7 compared to the industry average of 8.3. 

As Wincanton moves from its recovery to growth phase, the market should continue to re-rate the shares and take advantage of the low earnings multiple.

Cash cow

There’s no other way of putting it, Photo-Me is a cash cow. The firm has used its dominant position in the world of fixed high-margin photo booths to expand into new markets including washing machines and car washes with reasonably attractive returns. 

Earnings per share have risen from 4p in 2012 to 9.2p for the year ending 30 April 2017. Over the same period, the company is on track to have paid out 26.5p per share in dividends to investors, around 65% of total earnings per share since 2012. As well as Photo-Me’s cash returns, the firm has amassed a cash pile of £77.2m, almost twice annual net profit. 

Shares in Photo-Me are currently trading at a forward P/E of 18, which may seem expensive, but for the past five years, the company has achieved an average return on capital of around 25%. For some comparison, last year tech giant Apple produced a return on capital of 24%. 

City analysts expect Photo-Me’s earnings per share to grow by a steady high single-digit percentage for the next three years. And assuming the shares continue to trade at today’s multiple, this indicates a capital gain in the region of 5% to 10% per annum. 

Add-in Photo-Me’s dividend yield of 4.2%, and the shares look to be an extremely attractive investment indeed.

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves 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.

More on Investing Articles

Investing Articles

Just released: our 3 top small-cap stocks to consider buying in April [PREMIUM PICKS]

Small-cap shares tend to be more volatile than larger companies, so we suggest investors should look to build up a…

Read more »

Investing Articles

Here’s why Tesla stock just rocketed 22.7%! Is it time to buy?

This writer wonders whether the news that sent Tesla stock soaring yesterday is a true gamechanger for the electric vehicle…

Read more »

Investing Articles

2 quality UK stocks to consider buying as share prices rally

With UK stocks moving higher, it might look as though investors with cash on hand have missed their chance. But…

Read more »

Investing Articles

How much £10,000 invested in Lloyds shares is forecast to be worth in 12 months

Harvey Jones is looking past today's stock market volatility to see where Lloyds shares may stand in a year's time.…

Read more »

Investing Articles

How Warren Buffett stays ahead of the stock market

When share prices fall, everyone suddenly wants to be like Warren Buffett. But what’s the secret to the Berkshire Hathaway…

Read more »

Investing Articles

Cheap UK dividend shares to consider buying right now

We're only just past the first quarter of 2025, but it already looks like the year could be another good…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

What the heck is going on with the Barclays share price now?

The Barclays share price surged 25% as the market open on 10 April. Once again, the volatility’s been driven by…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

What the devil’s going on with the HSBC share price?

The HSBC share price has actually been less volatile than some of its peers, despite its Chinese operations suggesting it’s…

Read more »