Why I’d buy these 2 rising growth stocks

These two shares could be undervalued even after recent rises.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Since the start of the year, a number of shares have risen sharply in value. For some of them, this could now mean they are relatively overvalued. However, in other cases there could be further upside potential. Here are two shares which appear to fall into the latter category, based on their growth potential and valuations at the present time.

Strong start

Reporting on Thursday was acquisition specialist Marlowe (LSE: MRL). In its first year trading as Marlowe plc it was able to deliver eight acquisitions, with one further acquisition after the year-end. During the period, it has established a platform for growth which is focused on the fragmented fire & security and water treatment markets. It was able to achieve run rate revenues of £65m, while adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) was £4m.

With net cash of £3m and debt headroom of £15.3m, there seems to be scope for further M&A activity over the medium term. In fact, the company has identified a well-developed pipeline of attractive opportunities which could add scale to the business. This could help it to achieve its goal of building a leading UK support services group in critical asset maintenance.

Looking ahead, Marlowe is forecast to record a rise in its bottom line of 24% next year. This puts it on a price-to-earnings growth (PEG) ratio of just 1.4, which suggests it could offer capital growth potential. That’s despite its shares having risen by 26% in the last three months. With investor sentiment on the up and its financial performance set to improve, now could prove to be the right time to buy a slice of the company.

Wide-ranging potential

Also making gains in recent months have been shares in Curtis Banks (LSE: CBP). The pension administration services provider has risen by 14% since the start of the year. However, it continues to trade on a relatively enticing valuation. For example, it has a price-to-earnings (P/E) ratio of 23 despite being forecast to post a rise in earnings of 33% in the current year, followed by further growth of 13% next year. This translates into a PEG ratio of 1, which indicates its share price could move considerably higher over the medium term.

As well as growth and value appeal, Curtis Banks also offers significant income potential. It may only yield 1.5% at the present time, but it is expected to record a rise in dividends of 25% this year, and 20% next year. This puts it on forward yields of 1.9% in the current year and 2.3% next year. Despite this, it is expected to cover shareholder payouts almost three times next year. This suggests dividend growth could easily beat earnings growth over the coming years. With inflation moving higher, this could increase the appeal of the stock and help to push its share price higher.

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.

More on Investing Articles

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

2 recession-resistant UK stocks I’d buy and hold for a decade!

Our writer details two UK stocks she believes could still continue to perform well in a recession and not feel…

Read more »

Back view of blue NIO EP9 electric vehicle
Investing Articles

Down 31% this year! Is now the moment to buy NIO stock?

NIO stock has moved sharply downwards in the past couple of months. Christopher Ruane likes the business potential -- but…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 dividend stocks I reckon could grow payouts for years to come!

This Fool is looking for dividend stocks and explains why these two picks could be primed to grow their payouts…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Should I buy, sell, or hold my Rolls-Royce shares at £3.50?

This Fool considers what he should do with his Rolls-Royce shares following the FTSE 100 company's excellent full-year results last…

Read more »

Couple working from home while daughter watches video on smartphone with headphones on
Investing Articles

With a spare £280, here’s how I’d start buying shares this March

Our writer reflects on what he has learnt on the stock market to explain how he would start buying shares…

Read more »

Businesswoman calculating finances in an office
Investing Articles

Are these expensive FTSE 100 stocks actually brilliant bargains?

Paul Summers takes a closer look at two FTSE 100 stocks that could recover strongly in time, despite already carrying…

Read more »

Investing Articles

What might the recent Aviva share price performance tell me as an investor?

Christopher Ruane looks at how the Aviva share price has performed over the past 12 months and considers whether he…

Read more »

Investing Articles

Down by a quarter, is the BT share price a steal?

The BT share price has more than halved in the past five years. What is holding it down -- and…

Read more »