3 shares that could deliver spectacular growth for your portfolio

February profit reporting season is now over and despite the worst fears of some investors, the majority of companies either met or exceeded their expectations going into it.

In fact, according to Commsec’s analysis, 69% of companies that reported interim results improved their profit results – the highest result in the 12 profit reporting seasons they have covered.

Income-seeking investors would have also been happy, with almost 77% of companies either lifting or maintaining their dividends. As the graph below shows, this is well above the six-year average of the market.

Source: CommSec

Source: CommSec

Interestingly, the current dividend yield of the market is around 4.8% – the highest since the global financial crisis (June 2009). While this is partly a function of higher dividends being paid by companies, it is also the result of lower share prices –  a scenario that should be attractive for long-term investors.

Overall, the recent earnings season was better than expected and this should provide investors with some confidence to keep investing in high-quality companies when opportunities present themselves.

Three companies that reported positive results and are showing signs of more good things to come include:

1. Ramsay Health Care Limited (ASX: RHC) – Ramsay remains one of the premier healthcare stocks on the ASX and it delivered another set of strong growth figures when it released its FY16 interim results.

Core earnings per share (EPS) increased by 16.9% to 114.1 cents driven by particularly strong growth in its domestic operations. Ramsay’s global operations are also performing to expectations and this has allowed the company to upgrade its full year guidance for EPS growth between 15%-17% (up from 12%-14%).

The shares never appear ‘cheap’ by traditional valuation metrics but the company continues to deliver superior returns and this certainly justifies a premium valuation. Investors should keep in mind that the shares have rallied quite hard in the last week or so and waiting for a dip in the share price may be a prudent strategy.

2. Surfstitch Group Ltd (ASX: SRF) – The online apparel retailer was one of the star performers of 2015 but that all came crashing down following the release of its FY16 interim earnings.

Despite reporting a 40% increase in sales and a maiden underlying profit of $5.7 million, investors were clearly left deflated after management abandoned its full year prospectus earnings forecast and did not declare a dividend. Surfstich is instead investing heavily in content to expand its online offering and this is likely to deliver sustainable double-digit revenue and earnings growth over the medium term.

The market’s initial reaction to the company’s announcement was clearly short sighted, but in my opinion, this has created an excellent buying opportunity for investors seeking growth in an ever-expanding digital world.

3. G8 Education Ltd (ASX: GEM) – Shares of the childcare centre operator were initially sold down as the company’s full year underlying profit of $82.6 million came in slightly below market expectations. The shares have since recovered as investors took some time to digest the overall results and reflect on the company’s growth outlook.

Highlights from G8 Education’s FY15 results included EPS growth of 29%, 11% earnings growth in like-for-like centres, a 27% improvement in operating cash flows, a return on equity that increased to 14.5% and a full year dividend totalling 24 cents per share.

While there remains concerns surrounding the level of debt carried on its balance sheet, management is addressing this issue by ramping down its acquisition pipeline over the next 12 months. While this may impact earnings in the short term, this strategy should make G8 Education a more resilient company in the long term and allow it to be in a better position to grow its portfolio of centres.

The shares appear undervalued at current levels, trading on a price to earnings ratio of less than 15 and a fully franked dividend yield of 6.9%.

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Motley Fool contributor Christopher Georges owns shares of G8 Education and Surfstitch Group. 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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