2 attractive growth stocks that could double again

Packaging products manufacturer and distributor MacFarlaneGroup(LSE: MACF) delivered decent full-year results today and, as so often happens, the market greeted the good news by pushing down the share price in early trade, by more than 3% in this case.

The results came in as the market expected. Revenue is 9% higher than the year before and diluted earnings per share lifted 13%. The directors expressed their confidence in the outlook by raising the full-year dividend by 8%.

A story of success

The real story with MacFarlane is its long run of earnings and dividend growth that propelled the share price up more than 200% over the past five years. At today's 83p, the forward price-to-earnings (P/E) ratio sits around 11.5 for 2019, and the forward dividend yield is 3%. According to City analysts following the firm, earnings look set to rise 32% in the current year and 4% in 2019, which means the dividend payment will likely be covered about three times. Given the expected growth, I think the valuation is fair.

The good trading enabled a reduction in net borrowings by £1m, down to £14.3m, and the pension deficit fell by £2.7m, down to £11.8m, which the firm puts down to the deficit recovery contributions it made in the year. Such progress strengthening the balance sheet should help support the firm's forward growth.

Chairman Stuart Patterson tells us in the report that the company aims to expand by concentrating on added-value products and services, as well as seeking efficiency improvements, and keeping an ear to the ground for value-enhancing acquisitions. The outlook is positive, and I see any weakness in the stock now as an opportunity to hop aboard the longer-term growth story.

Resurgent earnings growth

Meanwhile, photographic and image products specialist VitecGroup(LSE: VTC) posted its full-year results today and the shares have gone up around 4%. The bigger story here is that the shares have more than doubled since the summer of 2016 due to a resurgence in earnings growth. Today's results continue that operational trend, with adjusted revenue from continuing operations 6.4% higher than the year before and adjusted basic earnings per share up a little over 11%. Net debt reduced by 43% down to around £43m, and the directors showed their confidence in the outlook by raising the total dividend by just over 12%.

The company has been busy in 2017 adjusting its business to capture the growth markets of the moment and disposed of two non-core businesses to fund the acquisitions of JOBY, Lowepro, and RTMotion. Chief executive Stephen Bird tells us in the report that the integration of these new brands is going well, saying that "Vitec has a strong position in exciting and fast-changing markets".

City analysts are predicting earnings growth of 22% in 2018 and 10% in 2019. At today's share price around 1,120p, you can buy into that growth trend for a forward P/E rating of about 13 for 2019, and the forward dividend yield is around 2.9%. Those forward earnings should cover the payment 2.7 times. I think the valuation seems fair for the growth on offer and see these as two attractive growth stocks that could double again.

More attractive smaller stocks

But MacFarlane Group and Vitec are not the only attractive smaller companies out there at the moment, which is why our outperforming stock analysts at The Motley Fool have produced a report called 1 Top Small-Cap From The Motley Fool to help you find more of them.

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Kevin Godbold 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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