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2 small-cap growth stocks with bargain-basement valuations

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Finding cheap stocks while the FTSE 100 is trading close to a record high may seem to be a challenging task. After all, the index has performed relatively well in the last year and has risen by 19% in total. However, there are a number of smaller companies which appear to offer upbeat growth prospects at reasonable prices. Here are two prime examples that could be worth a closer look, due in part to their ultra-low valuations.

Margin of safety

Having released a somewhat disappointing trading update in March, shares in project management specialist WYG (LSE: WYG) have underperformed in recent weeks. In fact, they are down by 30% in the last three months, which is indicative of declining investor sentiment.

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This is unsurprising, since WYG reported a combination of programme deferrals on existing contracts and some delays in the confirmation of new contracts in its fourth quarter. This meant that operating profit was lower than anticipated, although it was still up 25% on the previous year.

Looking ahead, the company has a strong order book of secured contracts. This has the potential to improve its bottom line. Its international operations continue to perform ahead of expectations in both revenue and profitability, which indicates that its long-term potential remains high.

Following its recent share price fall, WYG now trades on a price-to-earnings (P/E) ratio of just 8.3. This indicates that it may have significantly greater upside potential than downside risks at the present time. That’s especially the case since it is expected to report a rise in earnings of 20% in the current year, which puts it on a price-to-earnings growth (PEG) ratio of only 0.4.

Growth potential

Also offering a high forecast growth rate is multi-utility infrastructure and services provider Fulcrum Utility Services (LSE: FCRM). It is expected to record a rise in earnings of 8% in the current year, followed by further growth of 10% next year. With its shares trading on a PEG ratio of only 1.3, it seems to offer growth potential at a reasonable price.

According to the company’s most recent trading update, it is performing as expected. Its order book increased by 33% in the most recent financial year. This indicates that its earnings growth potential beyond the next two financial years could be relatively impressive.

Fulcrum Utility Services’ share price could also gain a boost from its income potential. It currently yields 3.5% from a dividend which is covered around twice by profit. This suggests that its shareholder payouts could increase at a faster pace than inflation. It has a sound track record in this space, since dividends have more than doubled in the last two years on a per share basis.

At a time when higher inflation is becoming a reality, Fulcrum Utility Services could become increasingly popular among investors due to its low valuation, growth prospects and income potential. As such, now could be the right time to buy it.

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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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