2 hidden growth stocks I'd buy right now

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Light bulbs

Considering the relatively obscure market it occupies and the fact that it's only been a public company for two years, it's little surprise that alternative asset fund administrator Sanne Group (LSE: SNN) has quietly flown under the radar of many retail investors despite repeatedly posting huge increases in sales and profits.

The first reason to take a closer look at Sanne is that the market for its services is booming and growing at a very rapid clip. Alternative asset managers such as hedge funds, private equity groups and private debt investors are facing increasingly strict regulatory oversight across the globe.

As these asset managers investments' spill over into other territories they have found outsourcing back and middle office administration tasks a cost effective and valuable service. Indeed, the popularity of the company's services are clear in its results for 2016, when revenue leapt 40% year-on-year to £63.8m.

Organic growth was responsible for a little over half of this increase, but I'm even more interested in the acquisitions that accounted for the remainder. This is because the market for alternative asset fund administration is highly fragmented, which gives Sanne, as a well-capitalised and large player, significant room for continued market share growth through acquisitions.

And while many small caps can boast rapid growth but have a difficult time turning this growth into sustainable profits, Sanne has had no such problem. Last year pre-tax profits rose from £2.4m to £15m and underlying operating profit margins were a very healthy 35.5%. High levels of cash conversion also boosted its year-end net cash balance to £46.1m, providing firepower for future acquisitions.

However, all these positives have led investors to pile into the company's shares, which now trade at a lofty 28 times forward earnings. But this is in line with the company's historical valuations and with a sustainable business model and high market growth I reckon it's worth taking a closer look at Sanne.

Saving the environment is big business 

Another relatively recent entrant to the LSE benefitting from increased regulation is LED light manufacturer Luceco (LSE: LUCE). The company estimates the global market for LED lighting products will grow at a CAGR of 16.8% in the years to 2019 due to consumers and companies alike seeking to cut down on their electricity bills and conserve energy.

And Luceco is growing above the market at large thanks in part to owning its own manufacturing site in China, which keeps costs low and quality levels high. The other facet of the company's success has been expanding into markets outside the UK with sales teams and distribution networks across Europe.

In 2016 these assets boosted sales 29.8% to £133.8m while a full 200 basis point improvement in operating margins more than doubled adjusted pre-tax profits to £12.3m. Increased cash flow also brought the firm's net debt down to 1.4x times EBITDA and allowed for a maiden dividend of 0.3p.

Analysts are forecasting double-digit earnings growth in each of the next two years and these targets appear eminently achievable as the company invests in new sales networks and rolls out a wider range of products. With a healthy balance sheet, plenty of growth and huge dividend potential Luceco is at the top of my watch list, despite its shares trading at 22 times forward earnings.

If you prefer your growth shares to have a longer track record of success you can't do much better than the Motley Fool's Top Growth Share of 2017, which has increased sales every single year since going public in 1997.

And this founder-led business isn't done growing yet as it embarks upon international expansion. To discover why the Fool's Head of Investing believes this may cause its share price to triple in the coming decade, simply follow this link for your free, no obligation copy of his report.

Ian Pierce has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.