When the lower FTSE indices are rising — the FTSE 250 and FTSE Small Cap are both soundly beating the FTSE 100 right now — it can be time to look for smaller growth opportunities. I’ve been searching for low-PEG stocks (with low P/E ratios compared to their EPS growth forecasts) and I’ve found five that look good, all of which have modest net debt or even net cash:
I’ll start with Gulf Marine Services (LSE: GMS), a provider of barges to the offshore oil industry, which only has a short track record as a quoted company — and not a great one, as the price slumped in 2014. But with the shares trading at 119p today they’re on a P/E of only 6.3 based on 2015 forecasts, dropping to 5 for 2016. There’s a drop in EPS expected this year, but a predicted 25% rise in 2016 would give the stock a PEG of only 0.2 — and growth investors typically consider 0.7 or less to be worth a closer look.
Next up is transport firm Stagecoach (LSE: SGC), whose business is expected to enjoy a 20% growth in EPS in 2016 after a flat year to April 2015, and that would drop its PEG to 0.6. On top of that, there are reasonable and well-covered dividend yields of around 3% expected on the 372p shares, so there should be some income to bolster its growth potential. With a P/E of 12 for 2016, dropping to 11 on 2017 forecasts, Stagecoach looks attractive.
Chime Communications (LSE: CHW) provides PR and marketing consultancy services, and the City is expecting great things from it. After chief executive Christopher Satterthwaite told us that “2014 was a year of good growth and saw the development of CSM as a global player in the sport and entertainment marketing businesses“, there’s a massive 170% boost in EPS expected this year, with a more modest but still appealing 15% extra for 2016. That gives us PEG ratios for the two years of 0.1 and 0.6 with the shares at 288p, and that’s on top of dividend yields exceeding 3%.
Investec (LSE: INVP) shares are up 20% over the past 12 months to 610p, but two more years of forecast EPS growth giving us a 2016 PEG of only 0.6 suggests there’s plenty more to come — and an improving financial environment should be a great help to investment companies like Investec. Forecast P/E multiples should also drop from 12.7 for 2016 to just 11.2 in 2017 if forecasts come good, and we’re even looking at dividend yields approaching 5% by 2017!
Then there’s Consort Medical (LSE: CSRT), whose shares have nearly trebled in five years to 920p. Forecasts for the firm that develops drug delivery systems suggest that’s not the end of it, with double-digit earnings on the cards for the next two years. That would give us a PEG of 0.7, and with CEO Jon Glenn speaking of “important new development contract wins and meaningful progress with […] development and innovation pipelines” at results time, Consort could carry on delivering for years to come.
Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Stagecoach. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.