These ‘secret’ growth stocks could still make you stunningly rich

They may be expensive but Paul Summers thinks there could be more upside ahead for investors in these small-cap growth stocks.

| 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.

Finding the best growth stocks ahead of the herd can lead to dramatic increases in your wealth. Here are just two low-profile companies that I think could go on to reward investors handsomely over the long term, despite their rather high valuations.

Encouraging results

As a result of its focus on the US healthcare industry, £400m cap software provider Craneware (LSE: CRW) may not be a business on many UK investors’ radars (at least for now). Recognised as a leading provider of “revenue integrity solutions“, the company dedicates itself to improving the financial performance of the one in four hospitals it currently serves. 

At the end of last month, it was announced that “a growing hospital operator” had both renewed and significantly expanded on its contract with Craneware. Worth $6m, the new agreement will involve implementing the company’s solutions in a number of new facilities recently acquired by the hospital network.

Should you invest £1,000 in Banco Santander right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Banco Santander made the list?

See the 6 stocks

Today’s AGM statement built on this good news by reporting that the company had experienced a “positive start” to trading in the current financial year, no doubt helped by the favourable market reaction to June’s launch of Trisus Claims Informatics — the first product on the company’s cloud-based platform. The Edinburgh-based business also reported observing “very encouraging results” for early adopters of its cost analytics product that is currently under development. 

Over the last two years, Craneware’s stock has doubled in price. As such, it won’t come as a surprise to learn that the company now commands a high valuation. But while a forward price-to-earnings (P/E) ratio of 37 implies that a lot of positive news already appears factored-in, I think the company’s track record of achieving consistently high operating margins and returns on the money it invests go some way to justifying this. Add a rock solid balance sheet and “high levels of revenue visibility” to the mix and I suspect Craneware could still generate a very decent return for new investors. 

Record revenues

Another company whose star appears to be rising is digital performance marketing specialist XL Media (LSE: XLM). A quick scan of September’s interim results helps to explain why the Jersey-based company’s stock has already rocketed 73% in price over the last year.

In the six months to the end of June, the business achieved record revenues of just under $69m — a 33% jump on the same period in 2016 —  driven mostly by excellent organic growth in its publishing division. Pre-tax profit rose 23% to $19.5m.

No stranger to acquisitions, XL purchased Canadian credit card comparison website Greedyrates and US financial services website Moneyunder30 over the reporting period. US cybersecurity comparison site Securethoughts was also acquired and, given the growth currently being experienced in this area, could become hugely valuable over time.

Like Craneware, XL Media possesses a suitably strong balance sheet ($43.1m cash) and generates excellent returns on sales and the capital it employs. As a bonus, the latter’s stock also comes with a really-rather-decent 3.6% yield — a rarity for a growth-focused company.

The only slight drawback I can see at the current time is XL’s current valuation. Given the importance of comparing like with like, the stock looks fairly expensive relative to industry peers at 16 times forecast earnings. As such, investors may wish to wait for a general market correction before adding the stock to their portfolios.

But there may be an even bigger investment opportunity that’s caught my eye:

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

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.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Craneware. 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.

Our best passive income stock ideas

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

5 passive income techniques of stock market millionaires

Christopher Ruane details a handful of approaches many successful stock market investors use to grow their passive income streams.

Read more »

Aston Martin DBX - rear pic of trunk
Investing Articles

Down 42% in a year, here’s why Aston Martin shares could keep falling

Aston Martin shares have destroyed vast amounts of shareholder value since the company listed in 2018. Are they now a…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

FTSE shares: a once in a blue moon chance to get rich?

Christopher Ruane explains why he thinks hunting for blue-chip FTSE bargains in the current market could help an investor build…

Read more »

Businessman hand stacking money coins with virtual percentage icons
Investing Articles

4 stocks Fools have bought for growth and dividends

Sometimes, an investor doesn’t have to make the choice between buying a growth stock or dividend shares! Some investments offer…

Read more »

Rolls-Royce's Pearl 10X engine series
Investing Articles

Is there no limit to how high Rolls-Royce shares might go?

Christopher Ruane sees some reasons Rolls-Royce shares could continue pushing upwards. But is he persuaded enough about the potential value…

Read more »

Businessman hand flipping wooden block cube from 2024 to 2025 on coins
Investing Articles

How much could £20k in a Stocks and Shares ISA be worth in 2030?

UK investors have enjoyed spectacular returns in their Stocks and Shares ISA's over the past five years. Would could the…

Read more »

Passive and Active: text from letters of the wooden alphabet on a green chalk board
Investing Articles

Is the FTSE 100 good for passive income?

Our writer considers whether investing in the UK’s largest listed companies could help generate generous levels of passive income.

Read more »

piggy bank, searching with binoculars
Investing Articles

Here’s the growth forecasts for International Consolidated Airlines (IAG) shares through to 2028!

Shares of International Consolidated Airlines (LSE: IAG) have risen following a strong set of first-quarter financials last week. Is the…

Read more »