The FTSE 250 contains a host of exciting growth stocks and investors can make big money if they choose well. These two have doubled investors’ money in pretty short order. Can they pull off the trick again?
Technical triumph
Specialised technical products and services company Diploma (LSE: DPLM) has climbed 120% in the past five years. It still has momentum, up 34% in the last 12 months. This includes a rise of 2.42% today, following publication of the group’s trading update which predicted a 7% rise in underlying revenues for the year ending 30 September, after adjusting for acquisitions and sterling movements.
The £1.58bn group continues to trade robustly with results on track to hit expectations, helped by operations in Europe, US, Russia and Australia, which give it global reach and diversification. It’s looking to accelerate growth through further acquisitions, completing several including Australian diagnostic business Abacus dx in April last year, which is already making a strong contribution to earnings. A couple of weeks ago it also acquired FS Cables, a UK supplier of specialist cable products, for an initial cash consideration of £17m.
Earnings growth
Its pipeline of acquisition opportunities remains healthy, today’s statement says, adding: “The Group has a robust balance sheet and a proven track record of strong cash generation.” With a forecast valuation of 24.9 times earnings this stock isn’t cheap and will have to keep growing to keep investors happy. However, earnings per share (EPS) growth has been steady for years and looks set to continue, with City analysts expecting another 5% gain in the year ending 30 September 2019.
Diploma yields just 1.9% with cover of 2.1, but my Foolish colleague Peter Stephens says investors can look forward to plenty of healthy dividend growth. However, you might want to wait until we hear more about the fate of CEO Richard Ingram, or rather former CEO, because he stepped down this morning with immediate effect. Non-executive director John Nicholas, who is filling in while the board seeks a successor, simply said the board believes a change in CEO “is in the best interests of the Company and its shareholders,” with no further explanation. Investors might want to hear more.
Cat people
While you’re waiting, why not check out IT infrastructure company Softcat (LSE: SCT), which has doubled investors money in an impressive 12 months, rather than five years. The FTSE 250 company provides workplace, datacentre, networking and security solutions, either in their premises or in the cloud, and has quickly grown into a £1.73bn company.
The growth is not confined to the share price with Softcat also offering generous dividend growth, as Royston Wild points out here. The forecast yield is currently 1.3%, but cover of 2.5 gives hope for further rapid progression, with one-off supplementary payments on top. Earnings growth looks promising, forecast 33% rise this year, followed by a more modest 6% in 2019.
Soft power
This is a company that has beaten earnings expectations before, and may do so again. Growth prospects like these don’t come cheap, however, with the stock trading at more than 30 times earnings. But with a sturdy operating model and strategy, it’s worth keeping an eye on this one.
