A handful of optimists bought shares in Blackmores Limited (ASX: BKL) at a staggering $200 per share yesterday.
While $200 marks a rarely seen milestone in Australian investing, it's unlikely to represent a winning stock for those portfolios. Blackmores carries significant risks at its current price, and investors looking for growth can find similar performance elsewhere at a fraction of the cost.
Here are two of my favourite growth stocks that could match or even beat Blackmores Limited over the long term:
Retail Food Group Limited (ASX: RFG) is a food franchisor – owner of Donut King, Gloria Jeans, Michel's Patisserie, Brumby's and many more – that is taking its first baby steps into expanding internationally.
I recently turned 4% of my portfolio into RFG shares based on a combination of the company's scale in Australia, solid financials (loads of cash flow) and room for expansion overseas.
With the establishment of a joint venture to bring Gloria Jeans into China, I feel that Retail Food Group has really opened the door to multiplying itself in size over the next decade or more. Domino's Pizza Enterprises Ltd. (ASX: DMP) has shown how effective a fast food franchise can be – even in mature foreign markets – and Retail Food Group has a wide variety of franchises it can grow.
Better yet, management is forecasting 20% growth in earnings for the year which, combined with the current low price, makes Retail Food Group look like a highly attractive long-term growth opportunity.
XERO FPO NZ (ASX: XRO) is a global accounting software company that is growing at a rapid clip – recently posting sales growth of 20% per quarter. According to its latest quarterly cash-flow report, Xero made $48 million in sales in the second quarter of this financial year, up from $40 million in the first quarter.
Xero's $48m in sales also compares extremely positively to the $27m achieved in the same quarter last year – a 78% increase. The growth is well hidden by heavy negative cash-flow (the company is losing money) which management says is a result of continual investment in future earnings capacity.
Effectively, Xero is spending all of its earnings and then some on investing in future growth – a strategy that will pay handsome rewards to shareholders if it pays off.
Ironically, despite the aggressive growth strategy I feel that Xero is a lower risk investment than Blackmores, which has an enormous amount of pricing risk built in.
