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2 top growth stocks trading at bargain prices

‘High growth potential’ and ‘bargain valuation’ are rarely terms used to describe the same company. But when one looks to relatively unknown and uncovered small-caps there are a handful of companies that bring both of these qualities to the table.

Managing plenty of growth 

One of them is £60m market cap property fund manager First Property Group (LSE: FPO), which reported a whopping 54% year-on-year rise in earnings per share for the year to March and whose shares trade at 7.9 times earnings.

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While investing in property companies at this point in the economic cycle will rightly scare away many investors, FPO may be a less risky option than it first appears. The first reason is that its primary business is investing in property for institutional investors, which means recurring fee revenue and lower risk of a catastrophic hit to the income sheet when the market turns sour.

Funds managed on behalf of clients account for 51% of the group’s assets under management and last year they generated £2.05m in revenue, although a lack of performance fees meant pre-tax profits were only £0.4m.

Another reason FPO may be a more appealing choice than domestic homebuilders or REITs is that in recent years it has concentrated on increasing its exposure to Poland and Romania. These two fast-growing markets now account for around half of all assets under management and the entirety of the company’s directly owned property portfolio.

Buoyant property markets in each of these Eastern European nations made a huge contribution in the year with pre-tax profits from directly owned properties increasing from £9.9m to £10.3m. Although investing in a company this reliant on foreign markets may scare away some investors, FPO’s decision to diversify appears a wise one to me given the state of the UK market.

Furthermore, with an increasingly healthy balance sheet, a decent 2.8% dividend yield and fair valuation I’ll definitely be taking a closer look at First Property Group in the coming quarters.

Few problems to paper over 

A more domestic-centric option is high-end wallpaper designer and manufacturer Walker Greenbank (LSE: WGB). The company has a great record of five straight years of earnings increases and its shares trade at a relatively tame 12.9 times forward earnings.

The company has done well to cope with the temporary closure of its Lancaster manufacturing facility due to flooding in 2015 and with this site now back to full capacity the stage is set for a period of renewed high growth. This growth is coming through increased international exposure and the acquisition of the Clarke & Clarke brand in late 2016, which added new styles, distribution links and international cachet.

The benefits of the acquisition are already being felt as total sales rose 5.2% year-on-year in 2016 and underlying operating profit, which discounts the effect of the flood and acquisition costs, rose 19.5% to £9.8m. As the management team focuses on finding new highly profitable international licensing agreements and domestic sales recover following the flood, the future appears bright for the company.

With good growth prospects, just £5.3m in net debt and quite a low valuation, Walker Greenbank is definitely on my watch list.

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Ian Pierce 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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