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2 undervalued growth stocks I’d buy right now

With the FTSE 100 continuing to trade above and beyond 7,000 points, many investors may consider now as a poor time to invest in shares. After all, the index has rarely been higher than its present level in the past. Despite this, a number of stocks with upbeat growth potential continue to offer wide margins of safety. Therefore, while they may not be dirt cheap right now, they could still deliver impressive capital growth. Here are two companies which could fall into that category.

Strong performance

Reporting on Friday was homeware manufacturer and distributor Portmeirion (LSE: PMP). The company’s share price declined by 5% after a trading update, even though it suggested the business was performing well. For example, total group sales increased by 16% in the first half of the year. Even when the positive impact of recently acquired Wax Lyrical was excluded, the company’s sales were 3% up on last year.

As an exporter, the depreciation of the pound has been welcome news for Portmeirion. Although interest rates are forecast to rise in the medium term in the UK, which could prompt a stronger pound, it continues to be on track to meet its guidance for the full year. In fact, it is due to increase its bottom line by 11% this year and follow this with growth of 9% next year. Both of these rates of growth are ahead of those of the wider index. They suggest that investor sentiment could improve.

Portmeirion’s valuation indicates that improved share price performance could be ahead after its 14% decline in the last year. It trades on a price-to-earnings growth (PEG) ratio of just 1.5, which is relatively cheap given its sound financial performance. As such, now could be the perfect time to buy it.

Growth potential

Also offering growth at a reasonable price is luxury interior furnishing company Walker Greenbank (LSE: WGB). It has experienced a consistent level of performance in recent periods, with its bottom line increasing in each of the last five financial years. It has recorded annualised growth of almost 11% during this time, which suggests it has a sound strategy that could perform well in a variety of market conditions.

Looking ahead, Walker Greenbank is expected to report a rise in earnings of 16% in the current year. This puts it on a PEG ratio of just 0.9, which appears to be rather low given its outlook and track record of consistency.

As well as its growth appeal, the company is also gradually becoming an enticing income stock. It currently yields 2% from a dividend which is covered 3.5 times by profit. This indicates there may be significant scope for dividends to rise at a higher rate than profit over the medium term. During a period of time when inflation is forecast to move higher, this enhances the company’s investment appeal.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended Portmeirion Group. 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.