Dialight plc and SThree plc: 2 growth stars you probably haven't considered

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Stars

If you're looking for the best growth opportunities, I think it makes sense to look further down the market at those companies that remain off the vast majority of professional investors' radars. Here are just two examples. 

Bright future

Holders of shares in £322m cap LED lighting technology company Dialight(LSE: DIA) will have enjoyed a stellar last 18 months. Trading around the 400p mark in early 2016, the stock now changes hands for just below 1000p -- a 150% return for those brave enough to buy after several years of poor performance and eventual demotion from the FTSE 250. Based on today's interim figures, it looks like this positive momentum will continue for some time to come.

The six months to the end of June saw the company increase revenue by 16% to 92.7m (3% in constant currency). Statutory pre-tax profit of £4m was also a great improvement on the £7m pre-tax loss sustained in H1 2016. To cap things off, Dialight also had £12.7m in net cash at the end of the interim period compared with £7.2m a year earlier.  

Commenting on the results, relatively new CEO Michael Sutsko said the company remained focused on delivering on its "ambitious growth strategy" with nine out of 12 product lines now transferred to the company's manufacturing partner following a restructuring of the business. With the remaining three lines due to be transferred by the end of 2017, expectations of performance in H2 were unchanged. 

Unfortunately, the surge in Dialight's shares over recent times has left them trading at a prohibitive-looking 28 times forecast earnings. Nevertheless, the company's relatively low price-to-earnings growth (PEG) ratio of just 0.6 -- based on expected EPS growth of 35% in 2017 -- suggests that the shares might be a far better deal than they first appear. 

Brexit-proof?

Also reporting today was £367m cap SThree(LSE: STHR), a company that provides specialist recruitment services in the science, technology, engineering and mathematics industries across the globe.

Despite mixed trading conditions, revenue climbed 17% to £521m in the six months to the end of May (or 7% when currency effects are taken into account). An encouraging 26% rise in adjusted operating profit (5% at constant currency) to £19.3m was also reported.

Although performance in the UK and Ireland was perhaps inevitably impacted by last year's referendum result, this year's election outcome and reforms in the public sector, the company's operations in the US market fared much better. Indeed, its second largest region now represents 22% of group gross profit. Those concerned by the impact of our forthcoming EU departure should also note that 80% of SThree's earnings over the six month period came from overseas -- 7% more than at this time last year.

Like Dialight, the firm boasts a low PEG ratio of just 0.9. Unlike Dialight, however, shares in SThree currently change hands at a far-more-reasonable looking 13 times forecast earnings for 2017. Despite remaining stagnant for many years, the shares also come with a juicy forecast yield of almost 5% that should appeal as much to income investors as those focused on capital growth.

Aside from the above, the small-cap now boasts a net cash position of £5.5m (compared to a debt burden of £4.4m in May 2016) and manages to generate high returns on the capital it invests.

Climbing almost 3% today, I think the stock warrants far more attention than it's currently receiving.

Another great growth opportunity

If you're on the hunt for the best growth shares, you simply can't afford to ignore the thoughts of Mark Rogers (the Fool's Head of UK Investing) on a top British brand with serious plans to expand overseas.

Mark's report is available completely FREE of charge and without obligation.  

For your copy, just click here

Paul Summers 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.