Growth in sales and/or earnings per share indicates a growing business.
Growth stocks can make very lucrative investments when the share price rises in time with the business expansion. But growth stocks are also risky as investment analysis is based on future price action rather than historical price performance.
For Q2 we've picked TXRH, BOOT, MRVI, OTCM, DAVA, and ORGO. These are some stocks we think have growth potential.
Texas Roadhouse Inc (NASDAQ: TXRH)
Texas Roadhouse Inc (NASDAQ: TXRH) is an American steakhouse chain specializing in steaks in a Texan and Southwestern cuisine style. Since 1993 the company has grown to 667 restaurants in 49 states and ten foreign countries. This includes 566 company restaurants and 101 franchise restaurants.
The company has shown a remarkable recovery from COVID-19, improving sales and earnings and beating 2019 figures last year.
Year-over-year growth is amazing and its financial metrics show signs TXRH could be an excellent growth stock. At 25.6, the P/E ratio is not as high as expected. It also pays a healthy dividend which is uncommon in this sector.
TXRH stock improved its cashflows and lowered its total debt from $831m in 2020 to $744m in 2021.
Better still, the Texas Roadhouse board recently authorized a stock repurchase of up to $300m. Since 2008, the company has bought back 18.3 million shares for $420.7m.
However, the company has been facing commodity cost inflation and certain food and supply shortages. This is likely to continue and is a risk shareholders should keep in mind.
Nevertheless, Texas Roadhouse continues to evaluate opportunities to develop restaurants in existing markets and new domestic and international markets.
Boot Barn Holdings Inc (NYSE: BOOT)
Boot Barn Holdings Inc (NYSE: BOOT) is a $2.9bn lifestyle retail chain. It sells boots and clothing via specialty retail stores in the United States. It also owns the Drysdales subsidiary, which carries the western theme of cowboy boots, western wear & work gear.
BOOT stock displays good growth over the past year with positive Y/Y results.
Although debt is higher than Boot Barn’s cash position, it has brought this down from $435m in 2020 to $331m in 2021.
The company has total assets of $933.5m. Therefore it should be in a good position to cover any debt.
Its financial metrics are encouraging. A P/E of 20.6 and a PEG of 1 suggests that BOOT stock is fairly priced. For many growth stocks, these figures are likely to be much higher.
Looking at the share price in 2020, it was trading around $10. Now it’s around $90. However, it’s still down 26% from its 52-week high.
Maravai Lifesciences Holdings Inc (NASDAQ: MRVI)
Maravai Lifesciences Holdings Inc (NASDAQ: MRVI) enables the development of drug therapies, diagnostics, and novel vaccines. The company also supports research on human diseases through its portfolio of market-leading companies and proprietary technologies.
In the last few years, the company has taken off. Company earnings and revenue growth has been outstanding over the past year. A return on equity of 73.2% shows that Maravai is generating profits efficiently. According to FactSet, 88.9% of analysts rate this stock a buy.
The stock has fluctuated year-to-date, but the profitable returns show the stock has room to grow. Indeed, the company stated it sees momentum continuing to build across its global customer base as mRNA research and cell and gene therapy development accelerates.
OTC Markets Group Inc. (OTCMKTS: OTCM)
OTC Markets Group Inc. (OTCMKTS: OTCM) is an American financial market providing price and liquidity information for almost 10,000 over-the-counter securities. The group has its headquarters in New York City. OTC-traded securities are organized into three markets to inform investors of opportunities and risks: OTCQX, OTCQB and Pink.
OTCM stock displays consistent revenue and earnings growth. The return on equity has been good, which has allowed it to have excellent Y/Y cash flow growth. This has also led to a reduction in total debt and continued cash generation. OTC Markets Group currently has total cash of $50.39m and total debt of $14.55m in its most recent quarter. The P/E appears to be in line with the rest of the market.
Read our guide on How to Buy OTC Stocks if you’d like to know more about the OTC Markets group.
Organogenesis Holdings Inc. (NASDAQ: ORGO)
Organogenesis Holdings Inc. (NASDAQ: ORGO) is a regenerative medicine company focused on products for the advanced wound care and surgical and sports medicine markets.
The company was recently named one of the 50 highest growth companies in Massachusetts by the Boston Business Journal.
The company reported net revenue growth of 20% Y/Y to $128.6m in Q4, 2021. This was driven by 30% growth in its Advanced Wound Care products segment, offsetting a 45% decrease in the sale of Surgical & Sports Medicine products.
Meanwhile, full-year net revenue increased 38% Y/Y. Organogenesis’s balance sheet and financial condition has never been stronger.
Organogenesis has been showing consistent revenue growth and has begun to generate positive earnings results. This has improved its cashflows.
When looking for growth stocks, a much higher P/E ratio than 13 is to be expected. This suggests the stock has more room to grow, especially a stock in the Biotech field where elevated P/E ratios are par for the course.
The company is focused on improving its profitability profile and related cash flow generation. It aims to continue executing its strategic growth initiatives in the years to come.
The case could be made that the stock is being overlooked and in position for a bull run. However, of late, ORGO stock has been somewhat bearish.
Endava plc (NYSE: DAVA)
Endava plc (NYSE: DAVA) is a publicly-listed software development company founded in 2000 in London, UK. The company provides digital transformation consulting, agile software development services and various automation solutions.
Endava supports clients in the financial services and payments sectors and recently opened an office in Canada.
Endava has been displaying consistent revenue and earnings growth over the last few years. This has allowed the company to generate positive Y/Y cash flow growth.
In its most recent quarter, the company shows a favorable cash position of $114.18m and total debt of $56.61m.
Since 2020, the stock has grown from $35 to trading consistently above $100.