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2 rock solid ASX companies with huge potential

I love companies that offer products and services that keep their clients coming back over and over again. It shows they have a certain level of competitive advantage – as well as reliable – usually steady – cash flows.

Here are two companies that have virtually embedded themselves into their client’s businesses and are benefitting as a result.

How would you like to own a company where 80% of the top 20 clients have been with the company for more than 25 years? What about a company with the 1 number market positions in Australia and Asia in its primary businesses that constitutes 87% of revenues, and number 2 in its secondary business?

Well, IPH Ltd (ASX: IPH) is one such company. IPH offers advice and services relating to patents, designs and trademarks in Australia and across Asia – a business that is less subject to the economic cycles than most. And while 80% of the top 20 clients have been with the company for more than 25 years, IPH had 3,000+ active clients in the last financial year.

Unfortunately, the market has also recognised that IPH is a high-quality company. From listing at $2.10 per share, the share price has zoomed up to $4.77 per share. At these prices, IPH is not cheap, trading on a prospective 2015 financial year P/E ratio of 31.8x.

IPH is also expected to pay a dividend of 10.4 cents per share this year, the annualised dividend yield equivalent of 2.2%.

Another benefit is that shareholders in IPH would be investing alongside 19 of the traditional owners of the business – who will have their 49.8% of the company escrowed for up to two years from listing. That means there’s substantial alignment between the business owners and shareholders – all we need now is a cheaper price.

The second company also boasts thousands of customers with the average tenure of its top 50 clients over 11 years, a leading market share in the Australia and New Zealand market, strong historical growth and huge potential ahead. The company is iSentia Group Ltd (ASX: ISD), which performs media monitoring services for companies.

If you are a large corporate and you want to know who mentioned your company name, where and see a copy of the article, tweet, blog or post, iSentia is the most likely company that can provide that information for you. In fact, iSentia provides that type of service and much, much more to 87% of companies listed in the S&P/ASX 100 index.

I’ve discussed the company in more detail here and since nominating as my top stock pick in early February, shares have soared more than 23%. At today’s price of $3.34, iSentia is trading on a fairly hefty forward P/E ratio of 33.7x.

To give you an idea of how expensive these two are, here’s the respective P/E ratios for two of the ASX’s top rated healthcare companies. Ramsay Health Care Limited (ASX: RHC) trades on a trailing P/E of 35.9x, while CSL Limited (ASX: CSL) sports a cheap (by comparison only) P/E ratio of 26.3x.

Foolish investors may want to wait for a cheaper price before biting the bullet on these two top quality companies.

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Motley Fool writer/analyst Mike King owns shares in iSentia and CSL. You can follow Mike on Twitter @TMFKinga