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2 top growth stocks trading on dirt-cheap valuations

With the FTSE 100 continuing to trade above 7,000 points, many investors may be finding it more challenging to find stocks offering growth at a reasonable price. After all, the main index is less than 5% off its record high, and this could mean many growth shares now offer a narrow margin of safety. As ever though, there are exceptions. Here are two stocks which could deliver impressive share price performance due to their high growth and low valuation offerings.

Sustainable growth

Reporting on Tuesday was online food delivery specialist Just Eat (LSE: JE). It was able to post a rise in revenues of 46% in the first three months of the year, which shows its business model is working well. Even on a currency-neutral, like-for-like (LFL) basis, the company’s orders were 40% higher than in the same quarter of the prior year. This was driven by strong order growth and last year’s commission increases. This meant that total orders were 39m, which is 25% higher on an LFL basis.

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Looking ahead, further growth within the UK and abroad looks to be on the horizon. There has been continued progress in the rollout of the company’s innovative Orderpad restaurant platform. This should help to boost sales across multiple geographies, which improves Just Eat’s diversification and potentially lowers its overall risk profile.

The company is forecast to report a rise in its bottom line of 36% in the current year, followed by growth of 37% next year. This puts it on a price-to-earnings growth (PEG) ratio of only 0.7, which indicates that it offers excellent value for money. With the popularity of online food delivery increasing and Just Eat having a sound business model to capitalise on it, now could be the perfect time to buy it.

Changing industry

Also offering upbeat capital growth prospects is owner of Zoopla and uSwitch, ZPG (LSE: ZPG). It is taking advantage of the growing popularity of online services when it comes to not only price comparison on areas such as credit cards and insurance, but also property services. Therefore, it has been able to deliver strong growth in recent years and is expected to continue to do so in 2017 and 2018. For example, its bottom line is forecast to be around 30% higher in 2018 than it was in 2016.

Despite its positive growth outlook, ZPG trades on a PEG ratio of only 1.2. It could benefit from the squeeze on household disposable incomes caused by higher inflation, since it may encourage consumers to seek a lower price elsewhere on utilities and other costs. And while a slowdown in the UK economy may not be good news for the housing sector, the lack of supply and low mortgage rates on offer may mean house prices remain buoyant. Therefore, ZPG could prove to be a sound growth play for the long term.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended Just Eat. 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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