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.
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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.