Why Saga's share price could be about to skyrocket alongside this growth stock
The prospects for the Saga(LSE: SAGA) share price seem to be brighter than a few months ago. Back then, the company was experiencing a hugely challenging period which saw it release a profit warning. After making various changes to its personnel and strategy since then, it now seems to be in a strong position to deliver a turnaround.
However, it's not the only stock that could be about to deliver a period of high growth. Reporting on Monday was a company which could be worth a closer look because of its strong earnings growth potential.
The company in question is actuator manufacturer and flow-control company Rotork(LSE: ROR). It released a trading update which showed that revenue in the first quarter of its financial year increased by 10.2%, with order intake rising by 27% on an organic constant currency basis. This reflects a continuation of the more favourable market trends which were present in the latter part of 2017.
The company has also received several major orders that have helped to positively catalyse its top line. This means that it now expects revenue for the full year to increase in the mid-to-high single-digits versus the previous year.
In terms of profitability, Rotork is expected to post a rise in its bottom line of 9% in the current year, followed by further growth of 12% next year. Both of these figures would represent a marked improvement on its performance in the last couple of years, where the company has struggled to generate growth that is ahead of the wider market.
With the company focused on reinvesting capital in the business, it is in the process of laying the foundations for sustainable growth. As such, now could be the right time to buy it, with its strong cash flow and modest net debt levels suggesting that it has a solid risk/reward ratio.
Of course, Saga is not expected to perform as well as Rotork over the course of the current financial year. The over-55s specialist is forecast to report a fall in earnings of 5% as it seeks to reposition itself under a new strategy. This is intended to make it more efficient and leverage the relatively high levels of customer loyalty that the company enjoys.
Since Saga is forecast to return to positive earnings growth of 2% in the next financial year, its current price-to-earnings (P/E) ratio of 11 may prove to be relatively modest. Certainly, the company is experiencing a difficult period and remains somewhat unpopular among investors. But with a 7% dividend yield that is covered 1.4 times by profit, it seems to have a mix of value and income appeal.
Certainly, it may lack strong growth prospects at the present time. But with a diverse business model that appears to be strong on an underlying basis, it could prove to be a sound investment for the long term. That's especially the case since the FTSE 100 trades above 7,000 points and some investors may feel there is a lack of value on offer in the wider index.
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Peter Stephens owns shares of Saga. The Motley Fool UK has recommended Rotork. 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.