Two Hot US Growth Stocks Analysts Are Loving

Conservative value investors this may not be for you! Investing in growth stocks means throwing out the value investing rule book and looking at the economy and consumer demand.

Netflix being a classic example. A company that on paper looks well and truly overvalued, but has grown by over 600% in 5 years!

Here are two companies that analysts believe have enormous growth potential.

 

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TAL Education

What they do

TAL education is set for massive growth in the coming years. The company provides K-12 after- school tutoring services in China.  They generally start at the kindergarten level but through one of their “Mobby” brand they offer services for two to twelve year olds’.

 

 

How Do they Make Money?

As with all good companies, TAL have multiple revenue streams. They sell online advertising as well as educational material. They have a comprehensive and engaged audience. It’s not just formal education that they provide, but also education around maternity and parenthood for example.

It’s also key to note that they are not just an online business. They have close to 600 learning centres and 460 service centres across 42 cities.

 

The Attractive Business Model

This business model is pretty clever. For starters, China has a population of 1.3 bn people that is on a steady increase. They always have a new market in that every year, new school children will be looking to improve their academic performance. Targeting lifestyle education like maternity is just the cream on the top of a captive market.

 

The Numbers

Value investors look away! Investing in growth companies is a different styles and means you need to look at a different set of numbers.

At the end of 2018, the company had earnings (not income) of $337m. Over 25 analysts predict that this will increase by 30% up to $419m in 12 months. And in 2021, 20 analysts predict earnings to be over $600m!

 

Final Thought

The business model looks good and the growth numbers are impressive. But these will depend on how well the economy is doing. If there is a cut in jobs and household income.

Things like after school tutoring become more of a luxury expense and may be cut. But as I mentioned before, diversifying into other areas of “life education” is a great long term strategy.

 

Medifast

 

What They Do

 

Medifast manufactures and distributes weight loss, weight management, healthy living products, and other consumable health and nutritional products. They have a multi channel distribution selling  its products through various channels, including the Internet, call centers, independent health advisors, franchise weight loss clinics, and direct consumer marketing

 

Why Analysts Think It Looks Good?

 

This company is what I call the holy trinity of stocks. That means that it’s undervalued, has great growth potential and no debt! This usually makes a  great recipe for success.

 

The other kicker is that they are a growing company in a growing industry. There’s no sign of the health/weight-loss industry slowing down anytime soon and when executed well, can be an extremely profitable business.

 

The Numbers

Analysts believe that this stock is undervalued compared to its future cash-flows. An not just a little undervalued, but a whopping 41%!

 

At the time of writing this the stock currently trades at $132. Analysts forecast a reasonable value based on the discounted cash flow analysis to be $224.

 

Analysts expect earnings to grow by more than 27% with expectations of the industry as a whole to grow its earnings by 19%

 

The final kicker being that the company has no debt. Meaning they are not going to be held hostage by increasing interest rates. Pair this with the fact that the CEO purchased $150,000 worth of stock in November 2018, it’s not surprise analysts like this stock.

 

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