Two high-flying growth stocks trading at bargain prices

Given their recent stellar growth rates these two FTSE 250 stocks could be a lot more expensive. You might want to take advantage of today’s undemanding valuations.

Precision engineering

Engineering company GKN (LSE: GKN) is running like a finely-oiled machine right now, its share price up 30% in the last 12 months. However, things have become a little bumpy lately, with its recent trading update suggesting that it may struggle to maintain current growth rates for another full year.

The problem is that it has a lot to live up to, with the company warning that it may struggle to match up to last year’s strong comparative growth rates. Given that last year’s growth was partly driven by sterling weakness, which boosted the value of its overseas earnings, that’s understandable, especially as the pound continues to rebound. Growth in the company’s aerospace market is also slightly slower than anticipated, although its automotive market has outperformed.

Now we’re motoring

In March I named GKN as a momentum stock you cannot afford to ignore, and I see no reason to change my mind, especially since it looks set to cash in on the switch to electric motors. With forecast earnings per share (EPS) growth of 10% this calendar year and 6% in 2018, the road ahead looks clear.

Yet despite these advantages, GKN currently trades at a forecast valuation of just 10.4 times earnings, which looks cheap to these eyes. Its 2.5% yield is covered 3.5 times, giving room for progression. It may struggle to beat last year’s performance but that now seems to be priced-in. Growth looks assured and GKN still looks a buy to me.

Mondi Mundo

International packaging and paper group Mondi (LSE: MNDI) is no lightweight. Its share price has quadrupled from 530p to 2,030p over the past five years. This is a true momentum stock, its share price up around 50% in the past 12 months alone, and showing no signs of slowing at present. Right now the share price is only just off its 12-month high.

Mondi isn’t as cheap as GKN, its forward valuation is currently 15.5 times earnings. However, that hardly looks excessive, given the storming growth this stock has delivered, and looks set to continue delivering in future. EPS are forecast to grow a healthy 11% this year, although you can expect a slowdown in 2018, with anticipated growth of just 4%. Steady as she goes, then.

Wrap it up

Mondi is no paper tiger, it generated an impressive €1.4bn cash from operations in 2016, a rise of 10%. Operating margins stand at 14.2% and return on capital employed at 19.1%. If the dividend yield looks relatively low at 2.4% this is largely due to its surging share price, as payouts have struggled to keep up. With cover at 2.4, management has plenty of scope for progression and it duly delivered in 2016, with a 10% hike in the full-year dividend to €0.57 per share. Let’s hope for more of that.

This £9.86bn company also has a strong capital investment pipeline. With more than €800m in major projects approved and in progress, Mondi appears to have the future all wrapped up.

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Harvey Jones 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.