Oil Search Limited and G8 Education Ltd: Fast growing stocks at reasonable prices

Pricing stocks according to their earnings growth potential is never an exact science. Unless they are relatively unknown stocks, paying a premium for fast growers sometimes is unavoidable. Still, paying a reasonable price for that growth is fine as long as you can feel secure in the projected growth.

If a company is growing earnings, let’s say by 25%, then paying around 25 – 30 times earnings isn’t out of the question. At that pace, it can potentially double its earnings in less than three years. Its stock could closely follow that uptrend as well. Here are two companies with strong growth profiles that I think could power their share prices up further over the next five years.

1)   G8 Education Ltd (ASX: GEM)

The childcare and education centre operator has been in an acquisition phase, amassing 379 centres in Australia and Singapore. The childcare industry is highly fragmented and most centres are operated by single, private owners, so the company could continue its expansion for a number of years. Childcare is in high demand among families and government subsidies also help make the business profitable.

The stock offers a 3.0% dividend yield fully franked and is priced at 27 times earnings. Over the past year, earnings per share were up about 26%, which matches well with its PE. Analyst consensus forecasts are for earnings to keep rising strongly over the next two years, spurred on by more childcare centre acquisitions. In its recent half year report, its interim net profit rose from $11 million to $16.3 million. It is like an expanding restaurant chain, while still in the growth phase, earnings increases can be remarkable.

2) Oil Search Limited (ASX: OSH)

The energy producer is projecting a four-fold increase in its production output by 2015 thanks to its PNG LNG project, which started to ship LNG exports in May and should reach full production capacity in two years. In FY 2013, earnings rose dramatically and its half year results saw net profit up 34%.

The stock has a 28 PE and offers a 0.6% yield unfranked. The yield may be small, but the dividend is forecast to rise along with projected earnings increases over the next two years. The company stated there is potential for two more LNG trains beyond 2015, which could ramp-up production once again, so current share prices may seem cheap 5-6 years from now.

More growth stock opportunities

I think it could be worth having both companies in your growth portfolio, especially if you can buy on any market correction. There are opportunities amongst smaller, not commonly followed stocks as well. One such stock is this growing company that pays a whopping grossed up dividend of over 6.2% and has already proven itself with 7 years of growing profits.

Not too long ago, directors also bought shares and the CEO owns over 15%! However, the share price has crept up a bit lately, so discover this stock now, before it's too late.

The Motley Fool's top dividend stock for 2014 offers growing sales, accelerating profits and a growing dividend! Find out the name and code right now -- your copy of "The Motley Fool's Top Dividend Stock for 2014" is FREE. Simply click here!

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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