2 secret stocks expected to deliver brilliant profits growth

Updated: 
A lot of £20 notes

Investors in Lombard Risk Management(LSE: LRM) took fright and headed for the exits in Wednesday trade after the release of less-than-reassuring trading numbers.

The business, which provides collateral management and regulatory reporting solutions, announced that revenues ducked 16.4% during the six months to September, to £12.7m, a result it put down to "a temporary fall in services revenues and some delays in contract signings."

As a result, pre-tax losses at Lombard Risk ballooned to £5.9m, from £100,000 a year earlier.

Chief executive Alastair Brown called the results "unsurprisingly pretty sober."

He said: "A number of opportunities we had hoped to secure in the period remain in the pipeline as market distractions such as MiFID II caused companies to delay on committing to new projects.

"This leaves us much to do in the second half, and converting our strong visible pipeline will be crucial to us meeting market forecasts," he added.

A risk too far?

The City's army of analysts had been expecting Lombard Risk to continue on its path of steady bottom-line improvement, flipping from losses of 0.18p per share in the year to March 2017, to earnings of 0.5p in the present period.

And earnings were predicted to continue tearing skywards beyond this year with the number crunchers touting a 152% earnings improvement -- to 1.2p -- in fiscal 2019.

Thanks to today's whopping 31% share price slide, these current projections result in a forward P/E ratio of 14.7 times, below the widely-accepted benchmark of 15 times that signals decent value for money.

And some share pickers could argue that the scale of transformation over at Lombard Risk makes it worthy of consideration at these prices -- indeed, Brown commented today: "during the period strong foundations have been put in place, with an improved salesforce, a new development centre in Birmingham, and a renewed effort to target new business as well as extant cross-selling opportunities."

However, potential buyers should be on guard for meaty downgrades to earnings forecasts given the challenging trading conditions Lombard Risk is toiling in. I reckon risk-averse investors may want to sit on the sidelines for now.

Powering on

Flowtech Fluidpower (LSE: FLO) is another stock expected to deliver perky profits growth in the near-term and beyond, and I am much more happy to endorse its earnings outlook than Lombard Risk's.

With demand for its hi-tech products continuing to swell -- these shot 34% higher during January-September to £54.5m, Flowtech advised last week, or by 12.4% on an organic basis -- it comes as no surprise that the company's share price is following suit. It has just topped out at 179p per share, taking total gains since the turn of 2017 to 43%.

City experts anticipate much, much more to come, and are predicting a 35% earnings rise in 2017 to be followed with a 17% advance next year. And current estimates make Flowtech stunning value, too, with the firm rocking up on a prospective P/E multiple of 13 times, and a sub-1 PEG readout of 0.4.

I reckon those seeking great growth shares on a budget could do a lot worse than pile into the AIM star.

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Royston Wild has no position in any of the 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.


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