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2 undervalued growth stocks you’ve never heard of

Finding stocks which offer surprisingly strong outlooks is one of the joys of investing. Certainly, owning more obvious, larger companies is likely to form the cornerstone of most investment strategies. However, companies which fall under the investment radars of many people can also be worthy of consideration. With that in mind, here are two stocks which could be sound buys for the long term.

Improving performance

Reporting on Wednesday was healthcare company Medica Group (LSE: MGP). It provides teleradiology services and reported that it has continued to perform well in the first half of the year. Fortunately, the cyber-attacks in May did not impact upon its own systems and IT infrastructure. Furthermore, the company was able to quickly work with affected clients to minimise the impact on patients.

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Medica has said that its recruitment of radiologists has continued to be strong, and it expects its results for the full year to be in line with expectations. For the year, it is forecast to record a rise in earnings of 113%. This is expected to be followed with further growth of 22% next year, both of which could lead to improving investor sentiment over the medium term.

Despite its relatively impressive outlook, the company trades on a price-to-earnings growth (PEG) ratio of only 1.2. This suggests that upside potential is significant. Although the company is relatively small and operates in a niche area, it seems to have a sound strategy through which to deliver improving share price performance. Therefore, within a diversified portfolio it could be an enticing buy.

Balanced potential

Also offering a bright future for its investors is public relations and integrated healthcare communications specialist Huntsworth (LSE: HNT). As with Medica Group, it has impressive future growth potential. It is forecast to grow its bottom line by 28% in the current year, followed by additional growth of 10% next year. This comes after a period of disappointment for the business which saw its earnings fall by 58% over a three-year period. However, having returned to positive growth last year, it seems to be on track to deliver more growth in future years.

With Huntsworth trading on a PEG ratio of 1.2, it seems to offer growth at a reasonable price. Alongside its value and growth appeal, it is also becoming a realistic proposition for income investors.

For example, even after halving its dividend in 2014, the company continues to yield an inflation-beating 3%. This is despite the company paying out only 41% of profit as a dividend. This suggests that rapid dividend growth could lie ahead, and even that a rise in shareholder payouts could exceed the company’s earnings growth rate without hurting its reinvestment potential.

As with Medica Group, Huntsworth is a relatively small entity and may therefore come with higher risk than many stocks. However, with a mix of income, growth and value appeal, it could post high share price gains in the long run.

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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.

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