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2 must-see growth stocks trading at bargain valuations

I was a fan of Peppa Pig from the first snort. I loved her before she was famous, and watched her grow from Channel 5’s favourite little piggy into a global cash cow. I own Peppa Pig DVDs, books and toys, and occasionally, I let the kids play with them too. The only thing I didn’t do was invest in the company that unleashed this treasure on the world, Entertainment One (LSE: ETO).

Piggy bank

That now looks like a mistake. The firm’s share price is up 43% over the past 12 months. Today it announced that the show’s award-winning animation studio, Astley Baker Davies, is set to make 117 brand new episodes, securing a pipeline of piggy content for another four years, starting from spring 2019. You can imagine how excited I am about that. Although to be honest, it was never in doubt. Entertainment One was hardly likely to stop feeding at this lucrative trough.

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Peppa Pig has conquered the world, hogging the TV schedules in the UK, Australia, US, Spain, Italy, France, Latin America and South East Asia. In China, it has generated more than 24.5bn views since launch two years ago. I have even watched it in Norwegian, although it loses something in translation.

Wallowing in money

Entertainment One has signed Peppa Pig contracts with licensing partners all over the world, recently adding a new line of toys in Brazil, and 40 partners in Russia covering toys, games and confectionery. The company’s market capitalisation is more than £1bn. City forecasters are predicting highly impressive earnings per share (EPS) growth of 18% in the year to 31 March 2018, and another 10% the year after. Yet you can still buy the stock at a bargain 12.15 times earnings. This swine is a real pearl.

Satellite broadcasting giant Sky (LSE: SKY) is a much bigger beast, with a market cap of £17.22bn. It has also had a good 12 months, with the share price currently trading near its 52-week high of 1005p, thanks to the takeover bid by 21st Century Fox. When the news broke on 5 December Sky’s share price soared from 754p to 1,000p, and has hovered around that level ever since.

Skyfall

The politics behind the bid are ugly, given Rupert Murdoch’s controversial reputation, and fears over media plurality. Yet the European Commission has given it the green light, based on competition grounds. UK regulators examining the proposed takeover should have reported on Tuesday but have been given an extension until after the general election, with a new deadline of 20 June. 

Sky’s directors agreed to Fox buying the 61% of the UK broadcaster it does not already own in a deal worth £11.7bn. Murdoch has a habit of getting his way, especially when politicians are involved, and most analysts expect the deal to go through, including RBC Capital Markets, which reckons investors should buy on that basis. Be warned: there is a slim chance that the deal will collapse, which could knock 10%-15% of the share price. However, that would also offer a compelling buying opportunity.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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