2 overlooked growth stocks powering ahead

These two stocks could jump-start your portfolio’s growth.

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

In the aftermath of Brexit, some stocks fared better than others, for example, those with international exposure were in high demand as investors sought to profit from the decline in the value of the pound. Meanwhile, UK-focused companies, specifically those in retail and recruitment, have struggled ever since the June 2016 vote.

Investors’ lack of desire for these companies has thrown up some fantastic bargains as, despite the dour market sentiment, business has continued as usual. 

Falling fast 

Between June 2015 and June 2016, shares in Pagegroup (LSE: PAGE) lost nearly half of their value excluding dividends, but over the past year, the shares have surged higher rising 57% over the previous 12 months.

A trading update from the company today showed why investor confidence has returned. The firm reported record group gross profit with growth of 7.7% during the first half of 2017. Revenue growth was reported across the majority of the company’s divisions. It was particularly strong in Europe and the Americas. With revenues at record levels, the group headcount has also hit record numbers with 178 new fee earners, or recruiters added in the second quarter. At the end of the quarter, the company had a net cash balance of £87m.

According to today’s update, Pagegroup is powering ahead, but the group’s valuation remains depressed. At the time of writing shares in the recruitment group trade at a forward P/E of 18.6, which is significantly below its five-year average of 24.6. The shares support a dividend yield of 3.6%, and the payout is covered 1.5 times by earnings per share.

Return to form 

Like Pagegroup, Hays (LSE: HAS) saw its share price crumble by around 50% in 2016, but the shares have since rallied to 61% as investors have bought back into the group’s growth story.

For the fiscal year ended 30 June, City analysts are expecting Hays to report earnings per share growth of 12% year-on-year followed by earnings growth of 9% for the following fiscal year. It seems as if the company is well on the way to meeting these forecasts with management announcing at the beginning of April that profits for the financial year were likely to be at the top end of market forecasts after the firm produced a record level of quarterly net fees.

Based on these estimates, shares in the recruitment group are trading at a forward P/E of 17.5, falling to 16.1 for fiscal 2018. Once again, these multiples are below the company’s own five-year average valuation, which currently stands at 19.

The bottom line

So overall, even though these recruiters suffered in relation to Brexit, it now looks as if Pagegroup and Hays are back on track. What’s more, even after recent gains, shares in these companies look undervalued compared to historic valuations implying that there could still be further upside ahead.

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.

Rupert Hargreaves 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

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

Could the 9.8% M&G dividend yield get even bigger?

Christopher Ruane reckons that, although the M&G dividend yield is already close to a double-digit percentage, it could get better…

Read more »

Investing Articles

How much passive income could I earn by putting £380 a month into a Stocks and Shares ISA?

Christopher Ruane explains how he'd aim to turn a Stocks and Shares ISA into four-figure passive income streams each year.

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

2 passive income stocks I’m buying before an interest rate cut

With the market expecting interest rates to fall in August, time might be running out for investors looking to buy…

Read more »

Investing Articles

If I’d bought Rolls-Royce shares a year ago, here’s what I’d have now

Rolls-Royce shares have been the big FTSE 100 success story of the past 12 months and more. And there's still…

Read more »

Young female analyst working at her desk in the office
Investing Articles

If the Dow’s heading for 60,000 by 2030, can the FTSE 100 index hit 12,000?

Strategist Ed Yardeni predicts a 50% rise for America’s Dow Jones Industrial Average over six years. Can the FTSE 100…

Read more »

Investing Articles

Is the National Grid share price a once-in-a-decade opportunity?

The National Grid share price looks like a bargain. But there’s much more for investors to think about than a…

Read more »

Investing Articles

Here’s why the Rolls-Royce share price should keep gaining!

The Rolls-Royce share price is up 185% over the past 12 months, but there are a host of tailwinds that…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Buying 1,852 shares in this ultra-high yield FTSE 100 income stock would give me £1k a year

Harvey Jones is keen to load up on this blue-chip income stock that pays the highest yield on the FTSE…

Read more »