High-quality growth stocks are rarely cheap, but opportunities can present themselves for the patient investor. Below, I highlight three such stocks that have performed well in 2017, including one that I believe may soon enter buying territory.
Challenger Ltd (ASX: CGF) is an Australian market-leader in annuity investments. The company's shares are up 24% in 2017, on the back of strong growth in assets under management (AUM). AUM is a key earnings driver for investment firms, and Challenger reported 17% growth in FY2017.
FY2018 is also off to a strong start, with Challenger increasing AUM by 5% in the first quarter, in part thanks to increased exposure in Japan. Demand for annuities in Australia appears set to continue as more baby boomers enter retirement, and Challenger's sales should rise through relationships with some of Australia's most prominent financial services firms.
Shares in gaming developer Aristocrat Leisure Limited (ASX: ALL) have increased 50% in 2017, as the company continues to grow revenue and earnings across all four of its business segments. Traditionally a maker of poker machines, Aristocrat has lately been investing heavily in online social gaming.
In November, Aristocrat announced it had entered into a binding agreement to acquire 100% of Big Fish Games Inc for USD$990 million. The move comes soon after Aristocrat finalised the purchase of Israeli-based social gaming company Plarium Global Limited.
These major acquisitions represent significant business risk for Aristocrat, though the company expects both purchases to generate positive earnings before amortisation in the first full year of ownership.
I believe the transition to online gaming makes sense, given Aristocrat's digital business segment has enjoyed substantial growth. For FY2017, digital revenue and earnings grew by 41.2% and 38.8% respectively.
MNF Group Ltd (ASX: MNF) provides voice communication solutions based on Voice Over Internet Protocol (VOIP) technology for enterprises, small businesses and individuals. The company has been one of the best performing stocks on the ASX over the last 10 years and 2017 has been another strong year so far; with MNF's shares rising more than 30%.
Management recently provided earnings guidance at its Annual General Meeting in November, forecasting FY2018 NPAT growth of 24%. That figure is based purely on organic growth only and ignores any potential profits from new major customers or acquisitions.
It appears management has therefore provided a relatively conservative profit estimate and given the company's track record of growth and acquisitions, I would not be surprised if MNF is ahead of expectations in time for its half year update.
MNF shares have retreated from their all-time high of $6.52 reached in late November, and I will be looking to buy should they fall below $6.
