Growth stocks can provide huge returns for investors andsome dont just rise steadily, they provide explosive growth. But which are the best? Today Im investigating if you really should be buying these two in-favour shares.
Bubbling up
Fevertree Drinks (LSE: FEVR)has been one of the most successful stocks on the London market in the last two years. Since the company had its initial public offering in November 2014 the shares have risen by a whopping 470%. Interim results released in July are evidence of the explosive growth this stock has seen. Revenue was up 69%, earnings per share was up 89% and the interim dividend was almost doubled to 1.54p.
Many investors have been put off the stock by the high price-to-earnings ratio and minuscule dividend yield. However, paying 83 times earnings for a growth stock like Fevertree isnt completely unheard of. Many of the highly successfultech companies in the US have traded on price-to-earnings ratios of over 80.
With itsgrowth potential, City analysts seem to think that Fevertree is fairly valued at the current price. This would seem to be a viewed held by the founders of the company too. Both Charles Rolls and Timothy Warrillow sold shares this year nettinga cool 17.7m between the two of them. Yet this to me is a bit of a red flag to be honest and I would be wary if the founders sell further shares any time soon.
Low cost production
Ithaca Energy (LSE: IAE)has been recovering well this year after a tough time in 2015. The shares are up 172% since 1 January this year and show no signs of stopping anytime soon. The recently released Q3 operational update shows that Ithaca iscontinuing to lower costs and work on asset profitability. The company produced 9,900 boepd (47% liquids) which was ahead of the 9,000 boepd target for the quarter.
The key value lever for Ithaca in the short term is first oil at the Stella fieldin the North Sea. First oil is expected in November and a rapid ramp up in production should seethe company reach anannualised production rate of approximately 16,000 boepd. This should drive the operating cost per barrel below the $20 mark and boost revenue and profits. In August, CEO Les Thomas saidproduction is running ahead of guidance, operating costs have been further reduced and we have continued deleveraging the business.
Ithaca has performed very well in the first half of 2016 and in the next few months the much anticipated Stella field will come online. First oilhas beendelayed multiple times but next year should be transformational for Ithaca. Itplans to continue to pay off debt and deleverage the balance sheet. This plan should be good for shareholders as the business equity price should increaseif oil stays above the $45 per barrel mark.
If you would like to take a look at another cracking growth stock then we have just the thing for you andI would recommend readingthisreport right now.
Expert market commentators at the Motley Fool have spent hours compiling a great report on atopgrowthstock.The analysts think the stock mentioned in the report could give investorshugereturnsoverthenextyearortwo.
The report is absolutely free and there are no obligations.
Jack Dingwall has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.