Finding growth stocks that have what it takes to churn out returns year after year is difficult, but not impossible. Indeed, I believe Ive stumbled across two such companies, which are revealed in full below.
Market-beating growth champion
DS Smith (LSE: SMDS) is one of the London markets best-performing stocks. The last time I covered the company, at the end of June, I calculated that the stock had produced a total return for investors of 28.5% per annum over the past five years. Since then the stock has gone on to add another 10% excluding dividends.
A trading update issued by the company today accounts for some of these gains.
Trading for the first half has been in line with expectations with very strong volume growth. Meanwhile, the groups return on capital employed isinthe upper end of the target range.
Group Chief ExecutiveMiles Roberts said:We are pleased with the consistently strong organic progress of the business. Customers continue to demand high-quality, innovative packaging on a multi-national basis and we have the scale and expertise to serve them.
The company also said that the integration of US East Coast-based Interstate Resources Inc, which was acquired mid-year, is apparently going to plan and to help boost growth further, in mid-October DSannounced the acquisition of EcoPack and EcoPaper in Romania.
Investor returns are key
As well as serving customers, DS is also serving its investors well. Gains of 25%+ per annum are some of the best around and even after this performance, the shares are not particularly expensive.
Shares in DS currently trade at a forward P/E of 15.1, falling to 13.7 for the fiscal year ending 30 April based on current City forecasts. This valuation does not look particularly demanding to me, especially as the company continues to invest in growth. I believe the company can continue to achieve double-digit annual returns for investors for the next decade as growth continues.
Explosive growth
DS isnt the only company thats managed to achieve double-digit returns for investors over the past five years. Manufacturer of external building parts Alumasc (LSE: ALU) has seen its shares return 19.4% per annum for the past five years as earnings per share have nearly doubled.
Alumascs returns have come from a combination of both growth and dividends. As earnings per share have grown steadily, management has distributeda large portion of income to investors. The result is that its owners have receiveda double-digit annual return.
It looks as if this is set to continue. Right now the shares support a dividend yield of 4.6% and City analysts are projecting earnings per share growth of 7% for the year ending 30 June 2018. Assuming the companys valuation does not increase, according to my figures, the combination of growth and income will produce a return of 11.6% for investors.
However, its also possible the shares could re-rate to a high valuation. At present, shares in Alumasc are trading at a forward P/E of 7.7 compared to the sector average of 9.3.
Zero to a million
Overall, I believe DS Smith and Alumasc can continue to produce double-digit returns for investors over the next decade, but these are not the only companies with bright prospects.
One other company I’m positive on is revealed in this free report from the Motley Fool. Our analysts have picked out one small-cap that they believe could be one of the best growth stocks around and they reveal all in this free, no-obligation report.
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