The first question that flashes into my mind when I spot a tempting growth stock is this: how long can a good thing last? So, can the following two stocks maintain their strong recent pace?
Intertek Group
Multinational product testing, and certification company Intertek Group (LSE: ITRK) is flying right now, its share price up 24% in the past 12 months. In fact, it is up 12% in the past month alone, boosted by 2016 results showing 8.8% revenue growth at constant currency rates, more than doubling to 18.5% at actual rates. The company’s recent £6.31bn acquisition spree has been paying off, contributing £242m in additional revenues.
2016 numbers are so strong I could just keep on throwing them at you. Strong undiluted earnings per share (EPS) growth of 9.6% at constant rates, 19.2% at actual rates. Free cash flow of £318m, up 35.2% year-on-year driven by 139% cash conversion. The full-year dividend increased 19.3% to 62.4p per share. I think that’s enough for now.
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‘Tek boom
Obviously, the weak pound has given it a boost, although don’t expect a repeat as sterling finds its feet. Investors certainly can’t bank on a currency kicker to fire up the next set of results. However, the future looks upbeat, with forecast earnings per share (EPS) of 8% this year and 7% in 2018. Pre-tax profits are forecast to rise from £347m last year to £415m then again to £450m in 2018.
The yield may initially disappoint at 1.6%, but management has been progressive lately and cover is a chunky 2.7 times, so we can expect further income growth. This is one of the FTSE 100’s unsung heroes with a high quality and highly cash generative earnings model, and a bright future ahead of it. The only downside is that it isn’t cheap, trading at 23.30 times earnings. Maybe one to save for a market dip?
Relax, do it
Information service provider Relx (LSE: REL), formerly known as Reed Elsevier, has been flying even higher lately, growing 185% over five years, and 20% over the last 12 months. 2016 saw underlying revenues rise 4% to £6.9bn, with a strong performance from electronic and face-to-face revenues, and further development of its analytics and decision tools. This partially offset the continued decline in print revenues, a problem that afflicts the entire publishing industry.
My fellow Fool Ian Pearce has highlighted one particular concern, that students and academics in the US are increasingly reluctant to pay top dollar for access to the type of academic texts the company specialises in. With so much ‘content’ given away for free nowadays, people are increasingly unwilling to pay for anything, so this is one potential threat for you to explore. The other danger is its current valuation of 21.7 times earnings. So again, maybe wait for that dip.
Academic revolution
For now, I am happy to admire a 6% rise in adjusted operating profit from last year and bullish forecasts of 13% EPS growth in 2017, and another 9% in 2018. Today’s 2.3% yield should prove progressive. Dividend prospects look good for such a fast-grower. Relx hiked its full-year dividend 21% to 35.95p and aims to spend £700m on share buybacks this year, in line with 2016 spend. With two times cover, the income stream looks secure. So do its growth prospects, provided it can head off that student revolt.
