Versarien plc isn't the only growth stock that could make you a million

Shares of graphene specialist Versarien(LSE: VRS) have soared 390% over the last 12 months. But before discussing the current valuation and prospects of this hot growth stock, I'd like to tell you about another high-flying small-cap, Tarsus(LSE: TRS). This international business-to-business media group reported stunning top- and bottom-line growth in its annual results today.

Strong underlying growth

Tarsus is growing strongly, both organically and through carefully targeted acquisitions, intent on maximising the scale of its exhibitions and conferences and deepening its presence in higher-growth markets. A record year in 2017 saw revenue of £118m -- 72% ahead of 2016 -- and an 82% rise in underlying earnings per share (EPS) to 27.7p.

The current share price is 306p (little changed on the day), valuing this FTSE SmallCap-listed company at £346m. The price-to-sales (P/S) ratio is 2.9, the price-to-earnings (P/E) ratio is 11 and there's also a 3.3% dividend yield, with the board having declared a 10p a share payout.

Tarsus has an up-and-down annual EPS profile, which is off-putting at first sight. However, this cycle is because not all its events are annual. The table below, showing EPS growth year-on-year and year-on-year-after, gives an understanding of the progress the company's making.

 201320142015201620172018 est.
EPS20.0p12.7p21.4p15.2p27.7p17.9p
Growth year-on-year+64%-37%+69%-29%+82%-35%
Growth year-on-year-after+18%+4%+7%+20%+29%+18%

I'm not concerned by Tarsus's lumpy year-on-year earnings. The bottom line of the table shows the strong underlying growth and I rate the stock a 'buy'.

Price to sales

I had a close look at Versarien just before Christmas. I found no glaring 'red flags' in this AIM-listed company's accounts or in its directors' backgrounds. Its history of acquisitions wasn't altogether impressive but I concluded that two key acquisitions in the graphene space represented a genuinely significant commercial opportunity.

My personal rule of thumb is that however promising a company may be, the maximum P/S I'd be willing to buy at is 10. In Versarien's case this resulted in a buy price of up to 59p, based on annualising its £4.38m revenue in the six months to 30 September.

Progress

Having missed a chance when the shares dipped into my 'buy' territory early in the New Year and with a good bit of news flow from the company since, how does the land lie today?

So far this year, Versarien has announced an agreement with an unnamed Asia-headquartered global textiles and apparel manufacturer, a medical technology collaboration and another with minimalist footwear maker Vivobarefoot. As with similar announcements in the latter part of last year, it has given no indication of future revenues. Nor have we had an update on actual revenue booked since the 30 September half-year-end.

Price target

I can still find no broker forecasts, which leaves me with my valuation based on annualised H1 revenue. However, with the news flow and the year-end approaching, I'm now inclined to calculate revenue more generously by applying the H1 growth rate to the full year. This results in a figure of £9.95m.

So on my maximum P/S of 10, I'd only rate Versarien a 'buy' with its market capitalisation at up to £99.5m -- currently represented by a share price of 67p. With the shares trading at 85p as I'm writing, I may live to rue missing that sub-59p opportunity at the start of the year.

Could there be a better growth stock?

Whether or not you agree with my take on Versarien and Tarsus, you may be interested to read about another growth stock, which has caught the eye of the Motley Fool's experts in a big way. They've published a compelling analysis of it in a FREE, without obligation report called A Top Growth Share From The Motley Fool.

This under-the-radar company has confounded the market for years by consistently exceeding the growth priced-into the shares. And our analysts reckon there are very good reasons to be confident it will carry on doing so.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Tarsus Group. 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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