The FTSE 350 is home to terrific growth stocks that could put some of the Nasdaq tech giants to shame. And with all the economic volatility plaguing the financial markets right now, many of these expansionary enterprises are trading relatively cheaply versus their historical average.
With that in mind, let’s take a look at one business I’ve just added to my Stocks and Shares ISA.
Efficiency is the new sexy
Rising interest rates have made the sales environment quite challenging for most companies. As such, the growth-at-any-cost strategy used by many Silicon Valley darlings is no longer viable.
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So, investors have flipped the coin from being focused solely on revenue growth to earnings.
There are a lot of levers companies can pull to improve their profitability. The one that’s been reaching the most headlines is job cuts. But firms can also make adjustments to other budgets, like marketing, to try and reduce the volume of capital outflow.
However, in many cases, being forced into these decisions can create opportunities for more nimble competitors. And that’s why Kainos Group (LSE:KNOS) has been proving itself an increasingly valuable partner to have.
The firm is a digitalisation expert, helping businesses identify bottlenecks in their operational pipeline. It then helps to fix them using modern technology and automation.
Additionally, Kainos helps enterprises integrate the Workday human capital management (HCM) platform as well as its own software products for maximum operational efficiency.
One of the best UK growth investments?
Since its listing as a public company in late 2015, Kainos shares have delivered some fairly staggering gains for early investors.
During the last eight years, the group’s market capitalisation has increased by around 560%, or 26.7% on an annualised basis. And over the same time period, the dividend per share has jumped another whopping 300%, leading to exceptionally high gains for loyal shareholders.
Of course, past performance is no indicator of future results. However, upon closer inspection, similar gains may still be on the horizon.
As with its latest results, the group’s return on invested capital stood at 38.4%. That’s nearly four times higher than the 10% most profitable companies manage to achieve. And with such vast amounts of cash being generated from operations, the firm remains entirely debt-free.
Of course, no business is perfect, and Kainos does have some weak spots. With the revenue stream becoming increasingly tied to the Workday platform, any disruption to the relationship between these two firms could prove disastrous.
But even if they remain the best of friends, if competing HCM solutions steal market share from Workday, Kainos may be equally in trouble.
Nevertheless, given the immense growth and value creation this company has proven it’s capable of, I feel this is a risk worth taking for my ISA.
