One of the advantages of having a long-term investing perspective is the potential advantages of compounding returns. With compounding growth, a company only needs to grow at a rate of 15% per year to double within five years.
The following companies have proven they have the ability to grow at more than 15% and could be on their way to doubling their earnings in the next five years.
Energy producer Senex Energy Ltd (ASX: SXY) has hit significant production growth in the Cooper Basin and is likely to grow further as prices for east coast natural gas grow significantly in the next three years. Senex has grown net profit after tax (NPAT) from a loss of $3.5 million in 2011, to $61 million for the full year 2013. Continuing this trend in the first-half of FY14 underlying profit was up 36%.
Another company exhibiting aggressive growth is Yellow Brick Road Holdings Ltd (ASX: YBR), an ambitious wealth management company which is targeting up to 300 branches from 168 in operation at the end of FY13. The company grew revenues by 31% in 2012 and 68% in 2013 and is aiming to have positive cash flows by 2015.
Cloud focused, e-healthcare company Global Health Limited (ASX: GLH) also has many fast-growing ingredients to become a key healthcare player working with hospitals and care providers. Global Health had a great first-half result and is targeting full year NPAT growth of between 53% and 74%, on top of a 266% increase in 2013.
Resort and casino operator Donaco International Limited (ASX: DNA) is on track to significantly increase revenues and profit when it launches its new 428-room hotel in Vietnam in May. First-half adjusted NPAT grew 21% ahead of the launch and this is likely to rise significantly as the company also rolls out an increased number of gaming tables at its refurbished casino.
While there is no guarantee that these companies will be able to sustain their growth long-term, their performance over the last couple of years and current forward outlook is certainly positive. If they can sustain a 15% annual compounded growth rate, they could be on their way to doubling profit in the next five years.
The top ASX pick you’ve never heard of…
Top Motley Fool analysts just identified their #1 ASX pick for 2014, a small-cap stock that could be poised for big gains (and offers a fat, fully franked dividend!). Discover all the details now, including the name and code, in this FREE investment report, "The Motley Fool’s Top Stock for 2014."
Motley Fool contributor Regan Pearson owns shares in Senex Energy and Global Health Limited