5 emerging companies to buy today

From little things, big things grow.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There is nothing better than purchasing a wonderful company when it's small. Just imagine buying the likes of REA Group Limited (ASX: REA) or CSL Limited (ASX: CSL) a decade ago – your investments would be up 5,922% and 978% respectively, excluding dividends!

While these types of returns are of course anything but the norm, focusing on emerging companies with smaller market capitalisations is the way to identify wonderful firms before they get big.

Here are five emerging companies which have the potential to become much bigger companies and have the added benefits of paying a dividend. They are all expected to grow their earnings per share (EPS) by at least 10% in the current financial year and are trading on price-to-earnings (PE) multiples that look reasonable considering their growth outlook.

1)      Flexigroup Limited (ASX: FXL) has significant potential to expand its financial services business. With EPS growth of 12% forecast, the stock trades on a forward PE of just 14.7.

2)      SFG Australia (ASX: SFW) also has enormous scope to expand its wealth management services. With EPS expected to also grow by 12% this year, SFG is trading on a forward PE of 14.6.

3)      Dick Smith Holdings Ltd (ASX: DSH) hasn't had the easiest beginning to listed life, however at least one broker sees substantial opportunity for earnings growth. Based on this broker's numbers, the retailer is trading on a PE of just 12.5. For perspective, Dick Smith has a market capitalisation of around $500 million, while its fierce competitor JB Hi-Fi Limited (ASX: JBH) is a much larger business with a market cap of $1.8 billion to match.

4)      Trade Me Group Ltd (ASX: TME) is basically New Zealand's answer to eBay Inc. The online business is forecast to achieve earnings growth close to 19% over the next two years; this level of growth could well justify its forecast PE of 19.7.

5)      Kathmandu Ltd (ASX: KMD) also hails from NZ and has good growth prospects and the potential for international store expansion. Strong double-digit growth is forecast for the outdoor adventure retailer, yet it trades on an undemanding PE of 13.8.

Foolish takeaway

When searching for potential 'multi-bagger' stocks, the key  is to identify companies that have long growth runways ahead of themselves. The ability to keep growing for many years is the key to substantial earnings growth and long-term share price outperformance.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »