In the share market past performance is no guide to future returns as the disclaimer goes. However, it can often be instructive.
While on a risk-adjusted basis mid-cap or growth-style shares are often the best bet for growth.
This is because mid-cap companies are normally profitable, but still small enough to double in value reasonably quickly if you get some luck with your timing.
Often mid-cap businesses that grow earnings strongly also get re-rated with a higher earnings multiple by professional investors to reflect the fact that their anticipated growth rates are now stronger.
The twin tailwinds of earnings growth and a multiple re-rating can combine to produce powerful share price rises. A lot of the companies listed below have enjoyed this effect over the course of 2019.
Source: Commsec as at Nov 15, 2019.
Let's take a brief look at these businesses.
Avita Medical Ltd (ASX: AVH) is up a whopping 628% over 2019 but posted a $33 million loss over fiscal 2019. Yesterday it got added to the benchmark S&P/ ASX200 (ASX: XJO) index to mean index tracking funds will buy shares regardless of valuation. It also recently raised $120 million to fund its growth plans.
Z1P Co. Ltd (ASX: Z1P) is the buy-now-pay-later player posting strong growth in retailer and customer numbers. Given its opportunity to expand horizontally it could be one for the watch list.
Polynovo Ltd (ASX: PNV) also joined the S&P/ ASX200 in September 2019 in a move that has helped its shares climb 268% over 2019. The biotech player posted a loss of $3.2 million on revenue of just $13.7 million over fiscal 2019.
Jumbo Interactive Ltd (ASX: JIN) is the online lotto business that also joined the S&P/ ASX200 in September 2019. It posted a $26.4 million profit in on revenue of $65 million FY 2019. It looks worth some research.
EML Payments Ltd (ASX: EML) recently announced a scrip-funded $423 million acquisition of Irish fintech player Prepaid Financial Services. The group estimates the deal will be mid-teen EPSA accretive before cost savings extracted. EML is another business to watch although an acquisition this size brings a lot of risk.
Nanosonics Ltd (ASX: NAN) is the ultrasound disinfectant business that has enjoyed a strong year on the back of a new flagship product launch. The medical device business has a big global opportunity and is one to watch.
Dicker Data Ltd (ASX: DDR) is the IT hardware distribution business that is growing profits thanks to market share gains. It also has a tailwind as demand grows amongst enterprise customers for more IT hardware over time. The valuation looks reasonable and it also pays healthy quarterly fully franked dividends. It's a good example of a business that has enjoyed an earnings multiple re-rating on the back of strong profit growth.
Megaport Ltd (ASX: MP1) is the enterprise-facing adjustable internet connectivity and data centre service business catching a bid from institutional investors. It posted a $33 million loss in FY 2019 but it's potential to leverage the growth of the digital economy is impressing some investors.
Pro Medicus Limited (ASX: PME) is the software-as-a-service medical imaging business that has returned 136% year to date, but has actually fallen around 30% in value since September 2019. It boasts high profit margins, attractive economics and a market-leading product straddling the lucrative sectors of tech and healthcare.
Austal Ltd (ASX: ASB) is the commercial shipbuilder that has won a couple of lucrative contracts off the U.S. navy over the past year. As a result it's forecasting more strong profit growth in FY 2020.
