2 growth stocks I’d consider buying right now

Royston Wild discusses two London-listed stocks with titanic earnings potential.

| 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.

The latest set of financials from RhythmOne (LSE: RTHM) have hardly set the market on fire during Monday business, the stock dealing 3% lower from last week’s close.

But this is hardly a catastrophic state of affairs given RhythmOne’s rampant rise of late (the digital advertising specialist has gained 29% in value during the past month alone and hit record tops of 48.5p just last week).

Indeed, I view today’s pullback as a mere pause for breath before a likely fresh charge higher.

Chained to the rhythm

RhythmOne announced today that pre-tax losses narrowed considerably in the 12 months to March 2017, to $14.9m. This was a vast improvement from the $77.2m loss endured in the prior year.

The results underline the success of RhythmOne’s two-year transformation programme that has seen it migrate towards the fast-growth mobile, video and programmatic segments. The business saw revenues from these core operations shoot 28% higher last year, to $149m.

And RhythmOne has kept on splashing the cash in recent times to keep the sales streaming in. As well as investing $5m in product development at the core, the business also snapped up mobile rewards provider Perk Inc in December in an all-stock transaction valued at some $42.5m.

The City certainly expects RhythmOne’s massive revamp to pave the way for sustained, and electrifying, earnings growth from now on.

The San Francisco techie is expected to record earnings growth of 1.6p per share in fiscal 2018, resulting in a chunky P/E ratio of 28.2 times. But some would argue this premium is a fair rating given RhythmOne’s exceptional bottom-line prospects (indeed, the calculator bashers have chalked in an 85% rise in 2019 also).

I reckon today’s mild weakness provides an additional incentive for investors to pile in.

Turnaround titan

RhythmOne isn’t the only London-quoted stock expected to punch explosive earnings growth in the years ahead, of course.

Chemicals colossus Melrose Industries (LSE: MRO), for instance, is expected to see earnings climb 118% during 2018 following last year’s move back into bottom-line growth. And an extra 16% advance is chalked in for 2019.

Reassuringly the Birmingham company advised in recent days that trading remains “in line with expectations,” and that it was still on the hunt for another acquisition. Promisingly Melrose also advised that its Nortek business (bought in August 2016) “continues to improve its performance.” Underlying operating profit here galloped 35% higher during September-December.

Of course, the cyclical nature of the engineering sector, allied with the risks of hoovering up failing businesses and introducing huge restructuring, carries no little degree of risk.

However, Melrose has a terrific track record of creating shareholder value through its purchase of bombed-out assets before ultimately selling them on. And I believe this makes the stock fully deserving of a slightly toppy forward P/E multiple of 23.2 times. I believe the company should prove a sage pick for long-term investors.

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.

Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of Melrose. 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

Person holding magnifying glass over important document, reading the small print
Investing Articles

Just released: our top 3 small-cap stocks to consider buying in October [PREMIUM PICKS]

Small-cap shares tend to be more volatile than larger companies, so we suggest investors should look to build up a…

Read more »

Investing Articles

How I’d use an empty Stocks and Shares ISA to aim for a £1,000 monthly passive income

Here's how using a Stocks and Shares ISA really could help those of us who plan to invest for an…

Read more »

Investing Articles

This FTSE stock is up 20% and set for its best day ever! Time to buy?

This Fool takes a look at the half-year results from Burberry (LON:BRBY) to see if the struggling FTSE stock might…

Read more »

Investing Articles

This latest FTSE 100 dip could be an unmissable opportunity to pick up cut-price stocks

The FTSE 100 has pulled back with the government’s policy choices creating some negative sentiment. But this gives us a…

Read more »

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

As the WH Smith share price falls 4% on annual results, is it still worth considering?

WH Smith took a hit after this morning’s results left shareholders unimpressed. With the share price down 4%, Mark Hartley…

Read more »

Investing Articles

The Aviva share price just jumped 4.5% but still yields 7.02%! Time to buy?

A positive set of results has put fresh life into the Aviva share price. Harvey Jones says it offers bags…

Read more »

Investing Articles

Can a €500m buyback kickstart the Vodafone share price?

The Vodafone share price has been a loser for investors in recent years, and the dividend has been cut. We…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Growth Shares

3 mistakes I now avoid when choosing which growth stocks to buy

Jon Smith runs through some of the lessons he's learnt the hard way over the years about what to look…

Read more »