One bargain growth stock I’d buy ahead of Boohoo.Com plc

Shares in Boohoo.Com plc (LON: BOO) have flown, but here’s a potentially better bargain that could be just starting.

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I love a growth story — but I think I’m getting good at spotting a short-term overblown one these days.

I reckon I’m seeing that with BooHoo.Com (LSE: BOO), just as surely as I saw it with ASOS before. In the latter case I was sure the early share price rise was too much, too soon — I said it at the time and I’ve been proved right, as the shares crashed and have still not regained their early overblown peak.

Looking at Boohoo I see impressive rising profits for sure, and I certainly like the look of that. And forecasts for EPS growth of 38% in the year to February 2018 followed by a further 24% the year after look very tempting. But I must note that we’re already seeing a slowing in early growth, after last year brought a 97% rise and the year before racked up 48%.

Too expensive

Now, those are still great forecasts, but to put them into a valuation context, let’s look at PEG ratios. The PEG compares the prospective P/E ratio with the expected EPS growth to try to see if the current share valuation is justified by growth expectations. A value of 0.7 or less is often seen as a great indicator, while anything under around one is still pretty good.

Forecasts for Boohoo suggest a PEG greater than two for next year, rising to nearly three a year later. And P/E multiples come in at 84 and 69 for the two years respectively — the FTSE 100 average is around 14.

If the shares aren’t significantly cheaper than today’s 195p sometime in the medium-term future, I’ll be ready to ingest some headwear.

Better growth prospect

I’m more impressed by the growth prospects for oil and gas explorer Serica Energy (LSE: SQZ).

Having faced the oil price crisis and come out of it with the price of a barrel hovering around $50, I see the crushing pressure of super-low prices that critically endangered a number of indebted and unprofitable companies as receding, and I reckon we’re emerging into a new period of optimism for explorers.

Serica is profitable and has been for a couple of years, and we’re seeing forecasts that would double earnings per share this year to produce a very low P/E of only a little over four. Of course, the erratic nature of oil exploration profits means we shouldn’t treat this measure in the same way we would for most other sectors, but Thursday’s interim results do leave me feeling a little on the bullish side.

Growing profit

The company reported a post-tax profit of $10.3m, compared to a loss this time last year of $2.8m, and I was impressed by an operating cost (including transportation and processing) of $14 per barrel of oil equivalent. That’s low, and it suggests Serica has a reasonable safety margin should we enter a new phase of volatile oil prices.

Investors have been a little cautious of late due to an operations delay at the firm’s Erskine platform, but an update this week told us that production has successfully recommenced.

The Erskine field averaged 3,100 barrels per day up until May, and 2,800 barrels over the full period. And now it’s back online, I don’t see any great fears.

Serica’s period-end cash of $30m with no debt makes me see it as relatively low risk for the sector.

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.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended boohoo.com. 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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