In general, the FTSE 100 isn’t known for growth stocks. Its constituents tend to be established companies that are steady, rather than spectacular.
Beneath the surface though, there are some firms with exceptional growth prospects. They aren’t necessarily household names, but they’ve generated some outstanding returns for investors.
Halma
Halma (LSE:HLMA) is a conglomerate with subsidiaries that focus on safety, monitoring, and life sciences. Acquiring other businesses that it can develop has been key to its growth.
This has been a winning formula for both the company and its shareholders. Over the last decade, revenues have increased by 11% per year and earnings per share have grown at 10%.
As a result, the share price is up 334%, making it one of the FTSE 100’s best-performing stocks. And there’s more to like about Halma from an investment perspective.
In terms of acquisitions, the firm focuses on businesses that have dominant positions in niche markets. That makes them difficult to disrupt either from bigger companies or smaller ones.
Right now, Halma’s subsidiaries benefit from rising safety standards. But changing legislation can also be a risk for a company that operates in this area.
Investors should consider this seriously, but Halma has around 50 separate subsidiaries. As a result, the effect of a change for any individual one on the overall portfolio is likely to be limited
Bunzl
Like Halma, Bunzl (LSE:BNZL) is a conglomerate that aims to grow through a combination of acquisitions and organic growth. Its subsidiaries are focused on distributing everyday consumables.
The company’s revenues are up 92% over the last decade and earnings per share have increased by 143%. As a result, the share price is 144% higher than it was in 2014.
Bunzl’s big advantage is its scale. This allows it to take businesses that are successful in a particular region and add value by expanding globally.
Organic growth has been slowing recently at the company. That means the firm has had to rely more heavily on acquisitions to keep growing its sales and profits, which can be risky.
Bunzl is confident there are opportunities to keep growing, but investors should keep an eye on the acquisition pipeline. As long as that remains stable, the company should be in good shape.
UK winners
Neither Halma nor Bunzl is a household name, but both have been outstanding investments. While both companies pay dividends, this isn’t why they’ve performed so well.
The key to their success has been their growth. The businesses have found winning formulas that have allowed them to grow revenues and profits at impressive rates.
The big question, though, is whether investors should buy them at today’s prices. While I keep a close eye on both, I’d favour Bunzl over Halma right now.
The main reason is valuation. While I think there’s every chance Halma will generate great returns for investors going forward, at a much lower price-to-earnings (P/E) multiple, I see a better margin of safety with Bunzl.
