2 super growth stocks with upside potential
After the Bull Run which share prices have experienced in recent months, it may seem unlikely that further capital gains could be ahead. After all, valuations are generally higher than they were at the start of the year. However, growth potential remains high for many stocks, and their valuations may not be fully reflective of this. With that in mind, here are two stocks which could be worthy of a closer look right now.
A promising start
Reporting on Thursday was bespoke software systems supplier Scisys(LSE: SSY). It has made an encouraging start to the year, with order intake and cash flow being impressive. It has been able to make steady progress with the integration of Annova Systems, which was acquired in December 2016. It has also received overdue payments from the Ministry of Defence and a tax credit from HMRC, which have helped to bolster its cash flow. This has also helped to reduce net debt to £7.8m from £10.2m at the end of the previous financial year.
Based on its performance since the start of the year, Scisys is on track to meet guidance for the full year. Its group order book was 4% ahead of the same time as last year, and this is expected to aid it in meeting a forecast growth rate in earnings of 19% in the current year, followed by further growth of 7% next year.
Despite an upbeat outlook, Scisys has a relatively low valuation. Its price-to-earnings (P/E) ratio of 10.2 suggests capital gains could be ahead, while its price-to-earnings growth (PEG) ratio of 1.3 indicates that it offers a wide margin of safety. Certainly, it is a smaller company, which inevitably means a relatively high risk profile. However, in the long run it could prove to be a relatively strong performer.
Also offering impressive growth prospects is data solutions specialist D4t4(LSE: D4T4). It is expected to report a rise in its bottom line of 21% in the current year. This comes after a rather mixed period which has seen its earnings increase significantly, albeit in a rather volatile manner. Therefore, investors are likely to seek a wide margin of safety before investing in the stock. Since the company has a PEG ratio of just 0.9, it seems to offer a relatively enticing risk/reward ratio at the present time.
As well as growth and value potential, D4t4 could also become an increasingly attractive income stock. Over the last two years, dividends per share have risen by at least five times. This may put the company on a dividend yield of just 1.3% following its 24% share price rise over the last year. However, its shareholder payouts are covered 4.5 times and this suggests that dividends could increase at a rapid rate over the long run. As such, now could be the right time to buy D4t4 ahead of potentially improving overall performance.
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Peter Stephens 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.