Finding stocks which offer growth potential over a long period of time is notoriously difficult. However, by focusing on companies which offer a wide margin of safety as well as a sound strategy, it may be possible to achieve consistently high returns over a sustained period of time. With that in mind, here are two stocks which could be worth a closer look.
Updating the market on Wednesday regarding its quarterly performance was Talktalk(LSE: TALK). The company's outlook for the full year has remained unchanged, with it performing as expected in the three months to 30 June. For example, it saw good growth in the on-net base, with customer numbers rising by 20,000 versus a fall of 9,000 in the first quarter of the prior year.
This was made up pf growth in both its Consumer and Wholesale divisions. In Consumer, there was further strong demand for the company's Fixed Low Price Plans, with new acquisition activity and re-contracting driving the total number of customers on the plan to 1.3m. The growing in-contract base is continuing to contribute to improvements in the company's churn rate, with early life churn from customers signed up to the pricing plans significantly lower than in previous year. This suggests that Talktalk may enjoy higher repeat business and more stable financial performance in future.
In terms of its growth outlook, Talktalk is forecast to record a rise in its bottom line of 23% next year. This puts its shares on a price-to-earnings growth (PEG) ratio of just 0.7, which suggests that they may offer high growth potential at a reasonable price. With a sound strategy and a wide margin of safety, now may be the right time to buy a slice of the business.
Also offering upside potential at present is international corporate services company Hogg Robinson (LSE: HRG). Its track record of growth is somewhat mixed, with its bottom line having been relatively volatile in recent years. This trend is set to continue, with a fall of 10% due this year. However, this is forecast to be followed with a bottom line growth of 15% next year.
The market seems to have factored in Hogg Robinson's volatile earnings outlook. It trades on a PEG ratio of just 0.5, which suggests a wide margin of safety is on offer. If the company is able to deliver financial performance which is in line with its forecasts, it may see its valuation rise because investors seem to be pricing in a downgrade to at least some extent.
As well as growth potential, Hogg Robinson has a dividend yield of 4% from a payout which is covered 2.5 times by profit. This suggests dividend growth could be high, which may make it an enticing income stock over the long run.
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Peter Stephens owns shares of Talktalk.