1 attractive UK growth stock for 2024 and beyond

1 attractive UK growth stock for 2024 and beyond

With growth stocks, investors tend to focus on a company’s earnings performance rather than its ability to pay dividends.

For example, Spectra Systems (LSE: SPSY) looks interesting. The business is a “leader” in machine-readable, high-speed banknote authentication, brand protection technologies, and gaming security software.

A decent earnings record

It trades on the FTSE AIM market, and with the share price near 228p, the market capitalisation is around £112m. So it’s a small-cap stock, and that fact elevates the risk a little for investors.

However, Spectra System’s record for normalised earnings per share has been strong. Here’s what it’s looked like over the past few years:

The table shows robust revenue and earnings growth. On top of that, City analysts expect further increases in the top and bottom lines for next year.

Meanwhile, the share price chart reflects the progress of the business. Over the past five years, the stock’s risen by around 75%. That’s just the sort of gain I’m keen to lock into my portfolio for the coming years.

However, there’s never a guarantee any business will continue to perform well – all enterprises can suffer from operational challenges from time to time.

Nevertheless, Spectra Systems delivered a stonking set of half-year results in September 2023 with a bullish outlook statement. The business is trading in-line with expectations and is on course to meet analysts’ projections.

Organic and acquisitive progress

In December 2023, the company completed the purchase of Cartor Holdings Ltd, a business in the security printing industry. The move demonstrates ongoing potential for both organic and acquisitive growth.

Meanwhile, Spectra System’s balance sheet looks strong with a net cash position rather than net debt. That situation gives the company some fire power to invest and drive further growth ahead. For example, it could afford to make that latest acquisition.

I like the consistency of earnings here. That table above has no down years, and I’m hopeful the company can keep up such good performance.

But the dividend record is equally impressive. The compound annual growth rate of the shareholder payment is running near 14%. Meanwhile, the forward-looking dividend yield for 2024 is just above 4%. That could be a handy and growing income to collect while waiting for further business progress to develop.

The anticipated earnings multiple is around 19.5, suggesting a fair-to-full valuation, and that adds a bit of risk. However, if the company can keep on growing its earnings into the future, it may deliver a satisfactory investment outcome over the next five years or so.

I’m not in these shares at the moment, but this one’s way up on my watchlist for deeper consideration.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.