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2 tasty growth stocks trading at bargain valuations

With the pound falling and prices rising, and belts being tightened as we head towards the EU exit door, you might not think this is a great time to be looking for growth shares. But I reckon there are some great-looking prospects out there.

Solid sector

Seeking business that operate beyond our shores is one way to go, and the motor trade around the world is looking pretty healthy right now. And that’s helped engineer GKN (LSE: GKN), which leads the field in manufacturing vehicle drive shafts and axle joints, to an impressive year last year.

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After a couple of flat years, 2016 saw sales grow by 22%, with underlying pre-tax profit and EPS both up 12%. Chief executive Nigel Stein said “We expect 2017 to be another year of further growth“, and judging by Wednesday’s first-quarter update, that looks like what’s happening.

The firm told us that the automotive market has performed better than expected, though the aerospace business is “slightly slower” than planned. Mr Stein cautioned us that the initial rate of growth might not be sustained, but reiterated his expectation of overall growth for the year.

The shares have picked up 38% since a low in June last year, but I still think they’re looking like very good value. Continued EPS rises forecast for this year and next would drop the P/E to the 10 level by 2018.

Dividends aren’t massive with yields of only around 2.6%, but they’re gaining faster than inflation and are very well covered — and they’re really just a bonus for what I see as essentially a growth share at this stage.

All in all, I see a strongly cash-generative company here, with very modest net debt of around £700m for a £6bn company.

The last couple of years have seen some restructuring, and what’s come out of it looks to me like a company that’s set nicely for the next decade and more.

Soaring healthcare

If your idea of a growth share is a newly-listed smaller cap share that looks set for stellar growth in the short to medium term, then Georgia Healthcare (LSE: GHG) might be just up your street.

Since flotation in November 2015 on London’s main market (and not AIM, note), the shares have almost doubled to 357.5p — and that’s even after an initial drop.

What’s perhaps unusual for a market newcomer is that the firm has been making a profit right from the start, ramped it up very nicely in 2016, and has two years of very strong growth forecast for this year and next.

Although we’ve seen relatively high P/E valuations, that strong growth has provided low PEG multiples with forecasts for the same for another two years — anything around 0.7 or under is generally considered attractive, and we’re looking at 0.7 and 0.5 for 2017 and 2018.

If the mooted growth comes off, the P/E would drop to under 17 next year, and I see that as very undemanding for such a shiny growth star.

Now, it’s in Georgia, which adds risk. But it’s the biggest healthcare provider in that nation, and also the country’s biggest medical insurance provider and is big in pharmaceuticals.

All in all, it might be small and distant pond, but Georgia Healthcare is a very big fish in it. And I could see the shares easily doubling in the next five years.

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And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK owns shares of GKN. 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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