The Motley Fool

Why I’d buy super-growth stock IQE plc over Provident Financial plc

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.

Dice engraved with the words buy and sell, possibly in FTSE 100
Image source: Getty Images.

Pop the Champagne corks! Bring out the bunting! Finally there is some good news for beleaguered investors in doorstop lender Provident Financial (LSE: PFG). This morning it published a trading statement covering the period from 1 January to 8 May and its share price has leapt a jubilant 7.51% as a result.

Praise be

This a provident day for the troubled financial company, which reported that each of its three businesses started 2018 with “positive momentum which provides a strong foundation for delivering the group’s plan for 2018 as a whole”.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Its Vanquis Bank has delivered profits ahead of plan in the first quarter with robust margins and operational leverage, while Moneybarn delivered “strong new business volumes”, with impairments still tracking modestly above expectations but delinquency trends improving.

Can you credit it?

The recovery plan at its troubled home credit business is on track, apparently, delivering “a good collections performance during the critical first quarter trading period”. The group further cheered investors by reporting that following the recent rights issue, its capital position and liquidity are both strong, while the process to recruit a new chairman and additional non-executive directors is well under way.

CEO Malcolm Le May said the group is making good progress in strengthening its governance framework and changing the company’s culture to put customers at the heart of its strategy. “This will provide the basis for delivering attractive and sustainable returns to shareholders.”

Bargain buy

My Foolish colleague Kevin Godbold continues to shun Provident Financial, noting that it has seen the bottom fall out of its business model. Yet bargain hunters have been rewarded with a 21% share price rebound over three months, and today will lend further encouragement. City analysts reckon earnings per share (EPS) could rise 9% this year, and 35% in 2019. However, it is no longer dirt cheap with a forward valuation of 11.8 times earnings, and a full recovery is likely to take some time.

While Provident Financial has lost two thirds of its share price value over two years, Welsh semiconductor technology firm IQE (LSE: IQE) has multi-bagged, its stock rising 493% over the same period. This looks like a classic recovery versus momentum play, so which do you prefer?

High-IQ stock

The AIM-listed group, which has a market capitalisation of £900m, manufactures wafers for a host of global chip companies, with its products ending up in Apple’s iPhone X. It reported an 18% increase in adjusted profit before tax to £24.3m in 2017, with wafer sales up 16% to £154.5m. 

Citigroup recently reiterated its buy note with a target price of 195p. With the stock trading at 120p today, that gives potential upside of a further 62%. Royston Wild recently labelled IQE the stuff of legend, and believes it can continue to deliver stunning profits.

This is a view shared by City analysts, who predict EPS will rise 8% in 2018, and a whopping 39% in 2019. It is not cheap, trading at a forecast valuation of 28.9 times earnings, and given high expectations, even the slightest setback can play havoc with its share price. Any shift in demand, especially from Apple, could hurt. However, IQE’s momentum is sweeping all before it today.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Harvey Jones has no position in any of the 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.