While it may seem as though most share prices are high at the present time, there are still a number of stocks which could offer significant upside potential. Certainly, their margins of safety may not be as wide as they once were before the recent bull run in the FTSE 100. But they could still post stunning total returns over the long run. Here are two companies which could fall neatly into that category.
Improving performance
Reporting on Tuesday was adhesive and bonding solutions specialist Scapa (LSE: SCPA). The company enjoyed an excellent year, with revenue growing 13.3% and trading profit rising by 37.1%. Although both figures include the impact of positive currency translation, underlying revenue growth of 1.7% and underlying trading profit growth of 18.2% indicate that the company’s strategy is working well. Further evidence of this can be seen in the company’s rising trading profit margin, with it increasing to 10.4% from 8.6% in the previous year.
Looking ahead, there is scope for earnings growth as the company seeks to grow its business within the healthcare and industrial segments. This is expected to help Scapa to increase its bottom line by 11% in the next financial year.
While its shares currently trade on a price-to-earnings (P/E) ratio of over 30, the company has a solid track record of double-digit growth. For example, in the last five years it has been able to grow its bottom line at an annualised rate of 29%. This shows that as well as high growth, Scapa also offers resilient growth. As such, its shares seem to be worthy of purchase at the present time – especially with uncertainty surrounding the UK economic outlook continuing to build.
Growth opportunity
Also offering upbeat growth prospects is tissue manufacturer Accrol (LSE: ACRL). It is expected to grow its earnings by 11% in the current year, and by a further 5% next year. Its outlook could be upgraded due to the potential for pressure on household budgets. Due to higher inflation, consumers now have negative real-terms growth in disposable incomes, which means they may trade down to cheaper own-brands on a range of staple goods, such as tissues. This could lead to greater demand for Accrol’s services and more new contract wins in future.
Despite this growth potential, Accrol continues to trade on a relatively low valuation. For example, it has a P/E ratio of just over 10, which suggests that its shares could experience an upward re-rating over the medium term.
Certainly, the company’s lack of a dividend payment and the absence of plans to commence shareholder payouts over the next two years may hold investor sentiment back somewhat at a time when inflation is heading higher. However, with a sound business model, a track record of improving financial performance and a wide margin of safety, Accrol could prove to be an excellent long-term investment.
