If you're on the hunt for strong growth stocks to get your portfolio fired up this year, then you don't have look much further than these two stocks: Slater & Gordon Limited (ASX: SGH) and Domino's Pizza Enterprises Ltd. (ASX: DMP).
They have made great gains over the past two years, delighting their shareholders and within the past week they are both up 8% or more. I wouldn't tell you to chase them just because of one week's gains, but the rises do underline the potential growth of each stock from here on out. This is what you need to know.
Slater & Gordon is a law firm that has a network of offices under the brand names of Slater & Gordon, Trilby Misso Lawyers, Conveyancing Works, as well as Russell Jones & Walker and Claims Direct in the UK. Its full year results out this month showed a 27.9% gain in earnings per share and a 21% increase in full year dividends.
Also, it announced two more acquisitions, which is in keeping with its high growth. Like a chain store, it is taking over other law practices and expanding across the states. It has an 18 PE, which is at the top of its past average PE range, but earnings are forecast by analyst consensus to possibly rise a compound 10% annually over the next two years. The potential growth could justify such a PE ratio.
Domino's Pizza is up about 14% after announcing a 50.4% rise in net profit for FY 2014. A lot of the earnings growth came from its 75% owned Domino's Pizza Japan, which could potentially double the number of existing stores in Japan to about 600 over the next five years.
Chain restaurants have great growth potential when there are still a lot of regions to move into. That's why I would recommend this company. However, it does have a 43 PE, so I'm not too hot on the price. It would have to keep growing earnings 20% – 30% annually to make such a high PE make sense. It's possible, yet for now put it on the watchlist and wait for corrections to buy.
