2 exciting growth stocks with untapped potential

Considering UBM's(LSE: UBM) performance over the past decade, the company may not be the first choice for growth investors.

Over the last 10 years, shares in the company have lost 26% of their value as the group has struggled with a number of headwinds. However, it now looks as if management has pulled the business back on track. Over the past five years the shares have gained 19.2% excluding dividends, and over the previous 12 months, shares in UBM have added 9%. And for the first time in five years, last year revenue expanded by a noticeable amount.

Back to growth?

Between 2011 and 2015 UBM's revenue bounced between £794m and £550m, with an average of around £750m. For 2016, revenue of £863m was reported, and analysts have pencilled-in revenue of £1bn for 2017. What's more, for 2017 the company is expected to report a pre-tax profit of £250m, more than the past two years combined. Earnings per share are set to come in at 50.4p, up 26% year-on-year and based on these figures the shares trade at a forward P/E of 14.

As well as UBM's earnings growth, the shares also support a relatively attractive dividend yield of 3.2%, and the payout is covered twice by earnings per share.

So, after a decade of floundering it now looks as if it could be time to bet on UBM's recovery as the group builds on the foundations put in place over the past few years. As well as the company's attractive growth profile, it also boasts a healthy cash balance of nearly £300m, as reported at year-end 2016.

Freedom to grow

Like UBM, data services Euromoney(LSE: ERM) has struggled to find growth over the past five years. City analysts have pencilled-in earnings per share of 71.4p for the year ending 30 September 2017, up only 5.3% from fiscal 2012's reported number of 67.8p.

Still, while the company has struggled to find growth in the past, analysts are predicting bright things for the firm. For example, they expect earnings per share growth of 7% for this fiscal year followed by growth of 8% for 2018, the company's only two-year growth run since 2013.

According to management, the recent reduction of DMGT's stake in the business, from 68% to 49% has helped speed up diversification efforts, which explains why analysts now expect Euromoney's growth to pick up after several years of stagnation.

Looking after investors

Shares in Euromoney might look expensive today as they trade at a forward P/E of 14.4, but this multiple seems appropriate for the business. The company is highly cash generative and during its last fiscal interim period spent £200m buying back shares from DMGT. This deal has sent debt skyrocketing to £83.6m from a net cash position of £55.9m, but with around £50m of free cash being generated every year, it shouldn't be long before this debt is eliminated.

As well as the buybacks, which show that management is set on creating value for investors, the shares support a dividend yield of 2.4% at the time of writing. The payout is covered 2.8 times by earnings per share.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended UBM. 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.

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