Why you should consider these 2 growth shares with massive potential

Photo: Kate Ter Haar

Despite the S&P/ASX 200 (Index: ^AXJO) (ASX:XJO) struggling to make any meaningful gains for 2015, it is becoming increasingly difficult to find high-growth stocks at reasonable prices.

It is becoming more apparent that investors should remain patient to find good value rather than invest in stocks that have already had their growth prospects priced in.

In fact, it can be a successful strategy to remain patient and not be fully invested at all times. Opportunities can often arise without warning and the increasing level of volatility in markets means investors need to have the ability to be nimble to take advantage of these opportunities.

This is especially the case in the small and mid-cap sector of the market and I have recently added two stocks to my watchlist that I think could have massive growth potential but need to be bought at a reasonable price:

1. Adacel Technologies Limited (ASX: ADA) – Adacel Technologies is a global software provider for the aviation industry. The company has two main markets – the first being simulation and training and the second being air traffic management.

According to Adacel, it has the industry’s most advanced air traffic control simulation system that allows virtual training in real-life airfield environments. The company already has a strong foothold in the US market with contracts in both the civil and military markets.

Adacel’s air traffic management system utilises smart automation technology to produce cost savings and safety improvements for both airports and airlines by decreasing the reliance on human input.

Adacel’s technology has the ability to be rolled out to airports all around the world and as the aviation market continues to grow, the company will have an increasing number of opportunities to distribute its technology.

Importantly for investors, the company has been profitable for the past four years and is also paying a dividend. The company also recently upgraded its profit guidance and now expects profit before tax to increase by up around 50% in FY16 thanks to a stronger-than-expected start to the year.

Despite all of these positives, the share price has already climbed more than 720% over the past 12 months and the shares now look fully priced, trading at around 28x forecast FY16 earnings. If the share price comes off the boil however, I will be taking a much closer look at the company.

2. 3P Learning Ltd (ASX: 3PL) – 3P Learning is a global online education company with cloud-based, software-as a-service products in numeracy, literacy and science for school students in grades K-12.

Over 17,000 schools have utilised its software and it has a strong presence in Australia, New Zealand and the United Kingdom with growing operations in the United States, Canada, Hong Kong, South Africa and the Middle East.

There is massive scope for further expansion especially in the North American market where there are 127,000 schools and 58 million students.

Since its listing in 2014, its financial performance has been solid although the share price performance has not reflected this. Importantly, 3P Learning’s FY15 results were above its prospectus forecast with earnings per share increasing by 28%.

The company’s most recent trading update showed group revenue is up 20% for the financial year to date compared with the same period a year ago and this trend is likely to continue as the company broadens its market reach.

Despite the positive outlook and the massive growth potential ahead of 3P, the current valuation leaves little room for error. The shares are trading at more than 31x FY15 earnings and investors may want to wait for a more attractive entry price before making an investment.

Although 3P Learning and Adacel Technologies aren’t yet a buy in my opinion, there are three blue chip stocks that I think could really soar in 2016!

Why These 3 Blue Chip Shares Look Set to Soar in 2016

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Motley Fool contributor Christopher Georges has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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