Back in my early daysof growth investing, a friend commented that I seemed inordinately fond of shares that had already gone up. But if Idbeen put off by momentum, Id have missed quite a few good picks over the years.
A future multibagger?
One that catches my eye today isbusiness services firm Experian (LSE: EXPN), which does a good bit more than consumer credit checking.
Experian shares have climbed by 160% in the past 10 years, putting on 30% in the past 12 months alone and thats after a 3.7% drop Thursday to 1,632p, on full-year results day.
Benchmarkpre-tax profit was up 6%, and benchmarkearnings per share rose by 5% to 88.4 cents, but that was a little behind forecasts. I think the price fall on the day is typical of growth companies whenever figures come in even slightly short of expectations, we see a quick desertion regardless of long-term prospects.
Speaking of the long term, Experian has been strategically repositioning its consumer and B2B businesses, and told us it has made considerable progress on that score. The firmsCredit Services, Decision Analytics and Marketing Services offerings have apparently enjoyed strong growth, and Experian says it sees significant growth opportunities emerging over the medium term.
Cash generation
What I like best about Experian is the strongly cash-generative nature of its business. Withthelifting of its full-year dividend by 4% for a modest 2% yield, the company has returned more than $700m to shareholders over the year, and intends to repurchase shares to the value of $600m in the current year.
We are looking at forward P/E multiples of around the 20 level, which is ahead of the market average. But I see that as decent value for a stock that I think has significant potential for further growth in the coming decade.
A bigger winner
Theres been an even bigger rise at 3i Group (LSE: III), which has seen its share price soar by 370% over the past five years. But again we saw a drop on results day, with the price down 2% to 825p at the time of writing.
The investment specialist enjoyed a total return of 1,592m (36%), which is almost double the 2016 figure of 824m,and saw its net asset value climb by 30% to 604p per share.
With high levels of cash flow, including 270m from the sale of its debt management business, 3i ended the period with net cash of 419m, up from 165m a year previously.That enabled a20% boost to the full-year dividend, to 26.5p, which was comfortably ahead of forecasts.
That all sounds pretty glowing, so why the price fall on the day? Well, with Brexit looming, the company warned of another year of significant uncertainty ahead, and uncertainty is what institutional investors seem to fear the most.
But I reckon uncertainty is the private investors friend, as it gives us buying opportunities that the more cautious are avoiding. This years dividend yields 3.2% on the current share price, and forecasts for next years will surely be upgraded now.
And despite that storming pastperformance, 3i shares are on a forward P/E of only nine. I reckon thats cheap for a company with a long-term cash-rich future, and it could be a great buy for those who can handle a bit of short-term volatility.
Profitable growth
There aregrowth candidates of all shapes and sizes out there, and the tempting pick uncovered in ourTop Growth Share From The Motley Fool report has been raking in the cashfor years.
The pastfive years have brought indouble-digit annual earnings growth, and the City’s experts are predicting two more years of solid growth ahead of us. On top of that,a progressive dividend policy adds an extra attraction to the mix.
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