2 top growth shares you can’t afford to ignore

These two stocks offer surprisingly strong capital growth prospects.

| 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.

While stock markets are generally efficient, it is always possible to find companies which may offer some surprises. Often, this can be because their forecast growth rate has not yet been priced-in by the market. With the FTSE 100 trading near to an all-time high, this may seem unlikely. However, here are two companies which seem to offer wide margins of safety and significant upside potential.

Discounted valuation

Reporting on Tuesday was workspace provider IWG (LSE: IWG). Its performance in the first quarter of the year was in line with management expectations. It increased revenue by 9.1% at constant exchange rates, although this represented a decline of 1.5% at constant exchange rates. However, it expects an improving trend in sales activity to continue through the year, which means its financial performance should do likewise as the current year progresses.

IWG sees an opportunity to increase the number of new locations this year. Improving trading conditions in the US and major European markets last year have been followed by an improved outlook in the UK and in Asia Pacific. Therefore, its future appears to be positive despite uncertainties in the wider macroeconomic outlook.

Looking ahead, IWG is forecast to post a rise in its bottom line of 21% this year, followed by further growth of 15% next year. Although it has an upbeat outlook, its shares trade on a price-to-earnings growth (PEG) ratio of just one, which indicates that there is a wide margin of safety on offer. This could be due to the uncertain outlook for the global economy. While volatility may be high due to Brexit and wider global challenges, IWG’s low valuation means it could deliver high returns over the medium term.

Rising momentum

The share price performance of legal services business Gateley Holdings (LSE: GTLY) has been exceptional in recent months. It has risen by 23% since the start of the year, and by 61% in the last year. Despite this, it trades on a PEG ratio of only 1.7 owing to its forecast growth rate of 9% in the current year. This would follow a similar rate of growth in each of the last two years, which indicates that the company offers a relatively robust and sustainable growth profile.

In addition to capital growth potential, Gateley Holdings is also an attractive income stock. It currently yields 4.3% from a dividend which represents 71% of earnings. This indicates that dividends may increase at a faster pace than the company’s bottom line over the medium term, which suggests a double-digit dividend growth rate may be on the cards.

With inflation set to rise and the stock market being relatively high at the present time, Gateley Holdings has obvious potential for growth and income investors. Its shares may have risen in price in recent months, but that upward trend may be set to continue in future months.

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.

Peter Stephens 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.

More on Investing Articles

Investing Articles

Surely, the Rolls-Royce share price can’t go any higher in 2025?

The Rolls-Royce share price was the best performer on the FTSE 100 in 2023 and so far in 2024. Dr…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

Here’s how an investor could start buying shares with £100 in January

Our writer explains some of the things he thinks investors on a limited budget should consider before they start buying…

Read more »

Investing Articles

Forget FTSE 100 airlines! I think shares in this company offer better value to consider

Stephen Wright thinks value investors looking for shares to buy should include aircraft leasing company Aercap. But is now the…

Read more »

Investing Articles

Are Rolls-Royce shares undervalued heading into 2025?

As the new year approaches, Rolls-Royce shares are the top holding of a US fund recommended by Warren Buffett. But…

Read more »

Investing Articles

£20k in a high-interest savings account? It could be earning more passive income in stocks

Millions of us want a passive income, but a high-interest savings account might not be the best way to do…

Read more »

Investing Articles

3 tried and tested ways to earn passive income in 2025

Our writer examines the latest market trends and economic forecasts to uncover three great ways to earn passive income in…

Read more »

Investing Articles

Here’s what £10k invested in the FTSE 100 at the start of 2024 would be worth today

Last week's dip gives the wrong impression of the FTSE 100, which has had a pretty solid year once dividends…

Read more »

Investing Articles

UK REITs: a once-in-a-decade passive income opportunity?

As dividend yields hit 10-year highs, Stephen Wright thinks real estate investment trusts could be a great place to consider…

Read more »