Finding growth stocks which offer excellent value for money is becoming increasingly difficult. Part of the reason for this is the high level of the FTSE 100, with UK shares now trading close to record highs. This means that while a number of companies may have strong growth prospects, the market has factored them into valuations.
However, even with this situation, there are some stocks which could soar in the long run. Here are two companies which seem to offer growth at a reasonable price at the present time.
Reporting on Tuesday was tool and equipment rental company HSS Hire (LSE: HSS). It announced that underlying revenue in the second quarter of the year was marginally ahead of the prior year. It has seen an improving rental revenue trend due in part to it introducing a programme of sales initiatives. They have generally gained traction with target customers, and have been supported by the strength shown by the company’s Services business.
The cost reduction activities announced in May have progressed. The majority of them have now been implemented, with savings of £10m having been made. In tandem, the company’s new operating model has improved efficiencies, meaning less capital is required. This should help to free-up cash flow and lead to a leaner business model.
Looking ahead, HSS Hire is forecast to report a fall in earnings in the current year of 14%. While disappointing, it is due to follow this with growth of 85% next year. This puts it on a price-to-earnings growth (PEG) ratio of just 0.2, which suggests that it may offer upside potential. With a strategy that is gaining traction and improving its business model, its long-term prospects appear to be bright.
Operating within the same sector as HSS Hire is Speedy Hire (LSE: SDY). It is forecast to report earnings growth of 28% in the current year, followed by further growth of 23% next year. This means it has a PEG ratio of only 0.7, which suggests its shares are relatively cheap at the present time.
Having such a wide margin of safety appears to be a requirement for new investors in the company. After all, its track record of growth has been rather volatile. In the last five years its profitability has swung significantly, which means there may be a higher chance of downgrades to its earnings outlook. Therefore, a wide margin of safety provided by a low valuation could allow for substantial capital growth in the long run – even if the company’s performance fails to meet expectations.
As well as its growth appeal, Speedy Hire also offers a fast-growing dividend. Payouts are expected to rise by 44% over the next two years, while still being covered 2.7 times by profit. As such, even with a relatively low yield of 2.5%, the stock could have income appeal.
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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.