2 monster stocks in the making

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Hulk monster

There's no way to know for sure what companies will turn out to be the champions of tomorrow. Who would have thought 10 years ago, when ASOS was a little-known company trading at 110p, that it would go on to hit 7,000p within a decade, and generate sales of nearly £2bn per year? Having said that, here's a look at two exciting companies that have powerful tailwinds driving their growth. Both look to have considerable long-term potential, in my view.

GB Group

GB Group(LSE: GBG) is a specialist in identity data intelligence. By combining trillions of data records relating to people's identity, GB Group uses this information to help its clients in the fight against fraud. 

Fraud is a significant threat to both businesses and individuals in today's digital age. Indeed, online fraud is now the most common crime in the UK, according to the Crime Survey of England and Wales. Accountants KPMG estimate the 'value' of fraud committed in the UK last year topped £1bn. In short, society is battling a fraud epidemic.

GB Group appears to be benefitting from the problem and has enjoyed strong growth in recent years. Turnover has increased from £32m to £88m over the last five years, a compound annual growth rate (CAGR) of 22%, and City analysts expect further growth of over 30% this year.

Full-year results released in June saw adjusted basic earnings per share rise 24% to 13.1p, and the company was upbeat about future prospects, with the chairman saying: "As a result of the investments we've made, I believe we can respond even more effectively to the opportunities in the market, create further growth and build on our successes."

Earnings are anticipated to soften a little this year, before resuming their uptrend in FY2019. At the current share price, GB Group trades on a premium valuation of 31.2 times this year's estimated earnings, which clearly isn't cheap. However, I see plenty of growth set to come from the £570m market cap stock.

Smart Metering Systems

Another small-cap that looks interesting, in my opinion, is £635m market cap Smart Metering Systems(LSE: SMS).

The firm, which connects, owns, operates and maintains metering systems and databases on behalf of major energy companies, should benefit from the UK government's smart meter rollout, which has mandated a smart meter in every home and small business in the UK by 2020.

Smart Metering Systems has enjoyed a strong increase in sales over the last five years, with the top line skyrocketing from £16m to £67m (CAGR 33%) and City analysts expect further growth of 15% and 21% this year and next. Long-term shareholders have done very well, with the stock rising 250% over the last five years, and the company paying out five consecutive increased dividend payments.

Like GB Group, Smart Metering Systems trades at a lofty valuation, with consensus FY2017 earnings estimates of 21.7p per share, equating to a forward P/E ratio of 32.3 at present. However, a premium valuation is to be expected, given the growth prospects on offer. Look out for the company's interim results this coming Tuesday for indications of further progress.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended Smart Metering Systems. 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.