Investing in growth stocks can be a great way to accumulate wealth over the long term. I’ve spent quite a bit of time to try and find the very best opportunities on the market at the moment. Here are two companies that I’ll be adding to my portfolio soon. Let’s take a closer look.
Eye-watering earnings growth
Alpha FX’s (LSE:AFX) share price is up nearly 10% in the last year, while over the past three months it’s down 24%. At the time of writing, the shares are trading at 1,820p.
One way I like to gauge how quickly a growth stock is expanding is by looking at its historical earnings per share (EPS) growth. Between 2017 and 2021, the company’s EPS rose from 17.5p to 58.3p.
By my calculations, this means that the firm – a business providing financial solutions within foreign exchange – had a compound annual EPS growth rate, or the constant rate of return per year, of 27.2%. This is both strong and consistent, but it’s no guarantee of future performance, of course.
In its full-year results, the business reported that revenue had risen 68% to £77.5m, while pre-tax profits nearly doubled to £33.18m, year on year.
It’s also interesting to note that this company is debt free, having managed to build up a strong cash balance over recent years.
In addition, client numbers increased by 27% and average revenue per customer grew by 32%. Furthermore, the dividend payment rose from 8p to 11p, from 2020 to 2021, although I’m slightly concerned about the potential impact from the broader economic climate of rampant inflation.
Growth through acquisitions
Next GlobalData (LSE:DATA) may also offer me attractive growth. In the past year, the shares are down 44%, while in the last three months they’re down 25%. At the time of writing, they’re trading at 960p.
Its EPS grew from 17.21p to 30.8p between 2017 and 2021, resulting in a compound annual EPS growth rate of 12.35%. While this isn’t as high as Alpha FX, it’s certainly competitive.
Between 2020 and 2021, revenue increased from £178.4m to £189.3m, while pre-tax profits rose from £28.6m to £32.6m.
The business – an industrial intelligence firm – has made two acquisitions recently, expanding its reach into the automotive and agribusiness industries for “fuller scale and capabilities”.
It also paid a dividend in 2021 of 19.3p, up 14% on 2020. There is always, however, the threats posed by wage and cost inflation.
Overall, these two companies present me with appealing buying opportunities for long-term growth. The share prices have both fallen in recent times, so it’s potentially an attractive time to load up on the shares. I therefore think I will be adding these businesses to my portfolio very soon.