Finding shares which offer growth at a reasonable price is one way of improving portfolio performance. Certainly, unearthing such stocks can be challenging while share prices in general are relatively high. However, buying shares at a price which is below their intrinsic value ahead of a period of potential improved performance could offer a sound risk/reward ratio for long-term investors. Here are two companies with share prices of £2 or less which could be worth a closer look.
Improving performance
Reporting quarterly results on Thursday was recruitment specialist Hays (LSE: HAS). The company’s net fees during the period increased by 10% on a like-for-like (LFL) basis. This pushed it to a record quarterly net fee performance, with most of its divisions performing well. For example, Asia Pacific recorded LFL growth in net fees of 14%, while Continental Europe was close behind with growth of 13%. However, the UK continues to be a troublesome market, with net fees rising by just 1% LFL.
Despite this, the company reported that conditions in the UK remain stable overall. Since it is not the company’s largest market and it has a wide geographic spread, an uncertain outlook for the UK is unlikely to have a major impact on its overall performance.
With the Hays share price being 191p, it appears to offer good value for money. It is expected to post a rise in earnings of 13% in the current year, which puts it on a price-to-earnings growth (PEG) ratio of just 1.3. Certainly, the company is a cyclical stock and a margin of safety is likely to be required by investors. However, with loose monetary policies set to be pursued by many developed economies across the globe, the prospects for further rises in profitability beyond the current year seem high.
Low valuation
Also offering a bright investment outlook is Dixons Carphone (LSE: DC). The company trades at a price of 193p after falling 38% in the last six months as the company released a profit warning. In the short run, its shares could be somewhat volatile and may fall further as investor sentiment remains weak. However, with the stock now trading on a price-to-earnings (P/E) ratio of just 7.1 it seems to offer a wide margin of safety.
Certainly, the outlook for retailers in the UK is tough. Inflation is above and beyond the rate of wage growth and this could cause a delay to the purchase of big ticket items such as fridges, laptops, mobile phones and washing machines sold by Dixons Carphone. Furthermore, a weaker pound may make items such as mobile phones even more expensive for UK consumers.
Therefore, it would be unsurprising for its profitability to come under further pressure beyond the 19% decline which is forecast for the current year. However, with a solid business model and such a wide margin of safety, the stock could deliver impressive growth in the long run.
