2 bargain growth stocks you can’t afford to ignore

These two shares could deliver stunning returns.

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Finding stocks which offer a mix of high growth prospects and a low valuation is never easy. However, it’s especially difficult at a time when the FTSE 100 is trading near to its all-time high. Despite this, there are still a number of shares which could be worth buying right now. Here are two prime examples.

Better-than-expected performance

Reporting on Tuesday was technology company Sophos (LSE: SOPH). The cybersecurity specialist’s share price increased by around 12% following the trading update. It showed that the company’s current strategy is working well, with its fourth quarter being relatively strong. In fact, it expects to report Q4 constant currency billings growth of around 27%, excluding any benefit from the recently announced acquisition of Invincea.

Furthermore reported billings, which allow for the currency headwind, are expected to grow by around 18% in the full year. This will take them from $535m in 2015 to $630m in 2016, which is ahead of the current guidance of $610m-$617m. As a result, cash EBITDA (earnings before interest, tax, depreciation and amortisation) as well as free cash flow are expected to be ahead of the consensus range.

Looking ahead, Sophos is forecast to record a rise in its bottom line of 66% in the current year, followed by further growth of 33% next year. This puts its shares on a price-to-earnings growth (PEG) ratio of just 0.8, which indicates that more capital gains could be on the horizon.

Certainly, currency translation may prove to be a headwind during the rest of 2017, but Sophos appears to have a sound strategy through which to deliver improving share price performance. And with dividends expected to rise by 76% during the next two years, the company could become a surprise income play even through it currently yields only 0.8%.

Strong growth prospects

Another technology company which could be worth buying for the long term is SDL (LSE: SDL). Its main focus is on content management and language services, which may prove to be a relatively defensive and resilient niche in which to invest. This could provide a degree of stability to the company’s future financial performance, while its outlook remains highly impressive.

For example, SDL is forecast to report a rise in earnings of 20% in the current year, followed by further growth of 11% next year. This would follow three consecutive years of strong profit growth, where the company’s earnings increased at an annualised rate of over 100%. Despite its upbeat track record and growth potential, the company trades on a PEG ratio of just 1.7. This suggests there is additional capital gain potential on offer following its share price rise of 50% in the last year.

Furthermore, its shares appear to be cheap when compared to their historic valuation. In the last five years they have traded on an average price-to-earnings (P/E) ratio of 45.5, while at present they have a P/E ratio of 22.5.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens has no position in any 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.

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