Could this AIM growth stock help you become an ISA millionaire?

Renew Holdings(LSE: RNWH) is, without a doubt, one of the AIM market's best-performing stocks. Over the past two decades, this AIM growth champion has delivered a total return for investors of more than 3,600%, excluding dividends -- that works out at around 22% per annum according to my calculations. 

Renew has carved out a niche for itself delivering essential infrastructure maintenance tasks for regulated markets within the UK. As well as organic growth, the company has grown through acquisitions. For example, last November it acquired Giffen, a specialist mechanical, electrical and power services provider in the rail market.

And despite the headwinds buffeting the broader UK construction and engineering industry, it seems Renew's specialist focus and reputation is helping the company stay ahead of its peers. 

Ahead of the game

According to a trading update issued by the firm today, in advance of its interim results for the half year ended 31 March, the performance of the group "continues to be strong" with current trading in line with management expectations. The update also mentions Renew is currently seeing an "increased forward order book."

Unfortunately, the release does not detail management expectations for growth, but according to City analysts, for fiscal 2018, Renew could report a 15.1% increase in earnings per share for the year to 34.2p. This target implies that the shares are currently trading at a forward P/E of 11.1. 

In my view, this valuation severely undervalues the company and its prospects, and it does not seem to take into account Renew's historical record of earnings growth. Over the past six years, normalised earnings per share have risen by 130%.

Changing of the guard

I believe part of the reason for the company's low valuation is the fact that the business is currently in the process of a management transition. The team that has led the firm over the past decade has stepped aside to make way for new blood. 

In September 2016, chief executive Brian May was replaced by insider Paul Scott, head of Renew's engineering division and at the end of last year, finance director John Samuel was replaced by Sean Wyndham-Quinn, previously an advisor for the firm for nearly a decade.

The promotion of insiders should help smooth the transition, and it looks as if, so far, everything is going to plan. 

Cash-rich

The company is also benefitting from the fact that it has a small, positive net cash balance, although due to the timing of cash flows, management expects to report a "modest" net debt balance for the period ending 31 March. Still, unlike some of its peers in the construction and engineering sector, Renew is cash-rich, and conservative administration of the business has allowed it to maintain a healthy balance sheet while expanding through acquisitions. 

Moreover, robust cash generation has allowed the company to triple its dividend distribution to investors over the past six years. Today, shares in Renew support a dividend yield of 2.6%, and the payout is covered 3.5 times by earnings per share. As earnings continue to rise, I believe the company's dividend will head in the same direction. 

So overall, as the next generation of management steps up, and the group builds on its existing strengths, organically and via acquisitions, I believe Renew will continue to produce market-beating returns for investors. 

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Rupert Hargreaves owns no share 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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