3 growth shares I think have room to run higher

Credit: .coomb.

In my experience one of the most pleasing sights for investors is seeing their investments outperform the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).

Certain shares are more likely than others to provide strong returns for shareholders and beat the index. These growth shares usually come with the promise of high levels of earnings growth.

But not all shares ultimately deliver on these promises. I have picked out three growth shares which I believe can live up to market expectations and provide strong returns for their shareholders.

Australian Pharmaceutical Industries Ltd (ASX: API)

Australian Pharmaceutical Industries is the operator of beauty and pharmacy brands including Priceline, Soul Pattinson, and Pharmacist Advice.

According to CommSec, the company is expected to grow its earnings by around 18% per annum for the next two years. This is an increase on the impressive 11% per annum earnings growth the company achieved over the last five years.

The company currently has 420 stores in operation and intends on growing its store count by almost 20% to 500 in the next few years. This should prove to be a great boost to earnings for many years to come.

Asides from its own stores, the company’s pharmacy distribution segment services over 3,500 pharmacies in Australia. Its growth may have slowed a touch recently, but management expects it to start to grow steadily in the year ahead.

Bega Cheese Ltd (ASX: BGA)

A lot of the optimism surrounding Bega Cheese comes from its link up with Blackmores Limited (ASX: BKL). The two companies are intent on taking advantage of the insatiable Chinese demand for infant formula with a joint venture.

Recently it was announced that the pair are planning to launch a range of health food products into the huge Chinese consumer market. This move could be an indication that the companies are targeting China’s ageing population.

If this move is successful then I feel quite sure that Bega Cheese will be able to grow its bottom line at a rate that justifies the shares trading at an estimated forward price to earnings ratio of 33.

Mantra Group Ltd (ASX: MTR)

So far this year Mantra Group’s shares are down over 12%. I feel this could make it an ideal time to invest in the Australian accommodation operator.

Mantra Group operates 126 hotels and resorts with almost 15,000 rooms available. As most of these are based in Australia, I believe the company will benefit from a weaker Australian dollar and a rapid rise in Chinese tourism.

Analysts are expecting earnings to grow by a huge 20% per annum through to 2018. If Mantra Group can achieve this level of growth then I feel it may rebound strongly and retrace the share price decline it has posted this year.

Foolish takeaway

It is worth remembering that growth shares are not without risk. Because these type of companies tend to trade at a high earnings multiple, if they fail to deliver on expectations they can come crashing down to earth. Thankfully, I believe these three shares have a strong probability of delivering on expectations.

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Motley Fool contributor James Mickleboro 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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