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Two high-flying growth stocks trading at bargain valuations

Image: Cambria Automobiles: Fair use

It’s no secret that fast-growing companies usually trade at high valuations. Just look at ASOS, which currently trades on an eye-watering forward P/E ratio of 80. However for those willing to do the research, it’s possible to discover companies enjoying strong growth yet trading at bargain valuations. Here’s a look at two such companies.

Maintel Holdings

Communications specialist Maintel Holdings (LSE: MAI) is growing at a phenomenal rate. It specialises in the sale and installation of telecommunications systems and services to the enterprise business sector, delivering complete end-to-end solutions delivered on-premises or via the cloud.

Through a combination of organic growth, and key acquisitions, Maintel has enjoyed revenue growth of a stunning 49% per year over the last five years, and earnings have increased from 23p per share to 47p per share in this time. And with earnings set to soar 89% in FY2017 to 89p per share according to analysts’ estimates, the stock trades on a forward looking P/E ratio of just 10.4 at present, an undemanding multiple given the company’s growth history.  

Recent results were impressive, with revenue surging 114% after the “transformational” acquisition of Azzuri, although investors should note that organic revenue growth was only 1%. Adjusted profit before tax rose 52% and the dividend was increased 5%, taking the yield to 3.3% at the current share price.  

Bears will point out that debt has increased significantly after the Azzuri acquisition, with the debt-to-equity ratio now standing at 109%. However management recently stated that debt of 1.6 times adjusted EBITDA is “comfortably ahead of board expectations.”

CEO Eddie Buxton was upbeat about the company’s prospects for 2017 in March, stating that “the combination of an enlarged customer base and the broader technological platform positions Maintel well for an exciting growth trajectory in the cloud environment and we look forward to 2017 with cautious optimism.”

As a result, with the company’s market cap still a small £131m, it appears that Maintel offers value for a company well-placed to continue growing.

Cambria Automobiles

Another smaller company that looks to offer compelling value right now is Cambria Automobiles (LSE: CAMB), the owner of 50 car dealer franchises across the UK. Its business strategy is based around acquiring underperforming dealers, and management has a strong track record of improving these dealers’ profitability. The company also enjoys multiple revenue streams, as not only does it sell cars, but it also services them. 

Cambria has enjoyed robust growth in recent years, with revenue and earnings growing 12% and 25% per year over the last five years. The company also sports a high return on equity of around 24%. However, despite these impressive numbers, it trades cheaply on a forward P/E ratio of a low 8.1, and an enterprise value-to-sales ratio of just 0.11.

The shares spent most of 2016 trending down, which is not surprising given the Brexit-related uncertainty surrounding UK-focused companies. But more recently, the stock has formed a series of ‘higher lows’ and appears to be breaking out of the downtrend.

A trading update for the five months to the end of February was positive, with management stating that trading in the period had been “substantially ahead” of a year before. With the stock up 12% year-to-date, perhaps investors are finally catching on to the fact that Cambria is a fast-growing company trading at a dirt-cheap valuation.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK owns shares of Cambria Automobiles. 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.