Investing in smaller firms can turbocharge returns due to their faster growth potential compared to larger businesses. Here, I’ll highlight two growth stocks I’ll buy for my portfolio.
Ashtead Technology
My first pick is Ashtead Technology (LSE: AT.), a fast-growing £607m subsea equipment rental firm.
The share price has been on fire, rising a whopping 147% in the past year.
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What I like here is that the firm serves both the offshore renewables and oil and gas sectors, but also provides equipment for infrastructure decommissioning.
Moreover, its equipment fleet is 85% interchangeable across oil and gas and renewables markets. This flexibility is beneficial as it allows the efficient allocation of resources.
In the first half of 2023, revenue increased 57% year on year to £49.8m, while adjusted EBITDA surged 92% to £15.7m. Adjusted basic earnings per share (EPS) rose 72% to 14.2p.
This year, revenue’s forecast to rise around 50% to £162m, with EPS of 37p. That puts the shares on a forward price-to-earnings multiple of 20.5.
Based on this, I don’t think the stock’s particularly overvalued. But it also doesn’t leave much room for error should earnings come up light. So that’s a risk.
However, the company’s growing both organically and through bolt-on acquisitions. Oil and gas projects are still increasing globally, as are offshore wind farms. I intend to increase my holding.
Creo Medical
My second pick is Creo Medical (LSE: CREO). This is a medical device company with a market-cap of just £127m. It specialises in instruments for endoscopic (minimally invasive) surgery.
The share price has been hammered over the last five years, falling from 190p to 34p. That’s an 82% drop!
However, the shares have started to recover, advancing 47% in less than a year. This is down to commercial momentum, notably with its flagship product, Speedboat Inject.
This innovative surgical device offers the ability to dissect, coagulate (clot) and inject in a single device. It claims to make procedures easier and shorter, improving patient safety.
The company makes most of its money from the ongoing sale of disposable components, accessories and consumables to hospitals using these devices. This creates a long-term revenue stream.
In 2023, Creo expects to have grown revenue 13% year on year to £30.8m. And its top line is forecast to accelerate in 2024, rising 31% to £40.6m.
The firm isn’t yet profitable though, and expects an underlying EBITDA loss of £16.4m for 2023. While that would be an improvement on the £20.8m loss in 2022, the fact it’s still loss-making adds risk here.
Nevertheless, management says there’s now “a clear path” towards cashflow break-even in 2025. And with confirmed users rising around 120% last year, I’m confident about the ongoing growth story here.
Finally, Creo has recently launched Speedboat UltraSlim, a miniaturised version of the device that makes it compatible with all routine endoscopes worldwide.
It’s already been used successfully in procedures in the UK, US, Latin America and Asia Pacific to treat precancerous lesions in the colon, oesophagus and stomach. The clinical feedback has been “exceptional”.
Overall, the future looks incredibly bright. So I intend to buy more shares while they’re trading for pennies.
