The Motley Fool

2 cheap growth stocks with stunning potential

Finding shares capable of beating the FTSE 100 is never easy. With the index now at a record high, many investors may argue that it is even more challenging to unearth stocks which offer high growth prospects at a reasonable price. After all, investor expectations are bullish and this is reflected in relatively high valuations. Despite this, there are still companies which could be worth a closer look. Here are two stocks which could have high growth potential.

Strong growth

Reporting on Thursday was low-cost airline Wizz Air (LSE: WIZZ). The Central and Eastern European airline delivered a rise in passengers carried during the 2017 financial year of 19%, which contributed to an increase in revenue of 10%. Ticket revenue was 2% higher, while ancillary revenue increased by 23%. This allowed the company to generate record levels of profitability, with net profit surging 28% on the previous year.

Clearly, Wizz Air’s strategy is working well. It has been able to deliver high growth rates despite a difficult set of trading conditions. Low fares and increasing fuel prices have created challenges for many airlines. However, Wizz Air’s low-cost offering seems to have been popular with consumers. Looking ahead, the company is aiming to reduce costs yet further in order to expand on what are already relatively high margins for the airline sector.

Wizz Air is expected to report a rise in its bottom line of 3% in the current year, followed by further growth of 16% next year. Despite this high forecast growth rate, its shares trade on a price-to-earnings (P/E) ratio of just 13.5. This puts it on a price-to-earnings growth (PEG) ratio of only 0.8, which suggests that even after a 10% rise in its share price following its results, there could be more upside ahead.

Improving business

Also offering FTSE 100-beating potential is Thomas Cook (LSE: TCG). The company had endured a challenging period, with it experiencing multiple years of losses as recently as 2014. However, with a new strategy which focuses to a greater extent on the customer experience and its own-brand resorts, it seems to be on the cusp of high growth.

For example, Thomas Cook is forecast to record a rise in earnings of 17% in the current year, followed by further growth of 20% next year. Clearly, there is the potential for a downgrade to these figures if Brexit causes a downturn in the UK and European economies. However, with the company’s shares trading on a PEG ratio of 0.4, the market seems to have priced in the potential risks facing the business.

Although Thomas Cook currently yields just 0.7%, its dividend is due to double next year. Even then, it is expected to represent just 12% of net profit. This suggests rapid dividend growth could be ahead for the company, which may make it an even more enticing buy for the long term.

And what about Brexit?

As mentioned, economic challenges caused by Brexit could hurt share prices in the coming months. That's why the analysts at The Motley Fool have written a free and without obligation guide called Brexit: Your 5-Step Investor's Survival Guide.

It's a simple and straightforward guide that could make a real difference to your portfolio returns. It could help you to stay ahead of the wider index in 2017 and beyond.

Click here to get your copy of the guide – it's completely free and comes without any obligation.

Peter Stephens 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.