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These 2 growth stocks are ridiculously cheap

Empresaria (LSE: EMR) shares climbed over 5% to 154.5p in early trading today after the international specialist staffing group said it had delivered a record first-half performance.

The company reported net fee income (gross profit) 26% ahead of the same period last year, with the strongest trading being in the UK, Continental Europe and Asia Pacific regions. The board said: “The group remains on course to meet market expectations for the full year.”

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Impressive growth

Empresaria was founded in 1996 and floated on AIM in 2004 with 19.9m shares in issue. The share count has increased to 49m, as the company has had a number of placings over the years to fund its international expansion and widen its sector expertise.

Despite the share dilution, it’s delivered impressive earnings-per-share (EPS) growth. The compound annual growth rate (CAGR) since flotation has been 19.5% and over the last five years it’s notched up 23.3%.

Ridiculously cheap

The performance of Empresaria’s shares has been less impressive. The CAGR since its 65p IPO works out at just 5.2%.

What’s happened is that the shares have de-rated. The price-to-earnings (P/E) ratio has fallen from 47 to 13.2. Furthermore, it drops to 10.8 on analysts’ forecasts of 22.2% EPS growth for the current year. And with the price-to-earnings growth (PEG) ratio of 0.5 being well below the fair value marker of one, the shares appear ridiculously cheap.

The reason may be that analysts are forecasting EPS growth for 2018 to fall to less than 5%. I haven’t been able to get my hands on broker notes on the company and I’m at a loss to understand why such an abrupt deceleration of EPS growth is forecast. It’s not a sector-wide phenomenon.

The only thing I can think of is that Empresaria’s management has given cautious guidance to analysts on an under-promise-and-over-deliver basis. If so, the shares could be a snip at their current price. I tentatively rate them a ‘buy’ but would suggest potential purchasers investigate further.

Bargain basement buy

FTSE SmallCap firm S & U (LSE: SUS) is another stock that appears ridiculously cheap, given both a record of strong growth and forecasts for it to continue for the foreseeable future.

In its latest results, the company reported a 17th successive year of record pre-tax profits at its Advantage Motor Finance business. The chairman of the sub-prime specialist commented: “Brexit, Trump and another record set of results from S & U, plus ça change.”

My immediate response to such smug trumpet blowing tends to be “uh-oh, pride cometh before a fall,” but in this case management’s confidence does appear to be justified.

However despite this, and City forecasts of mid-teens EPS growth this year and next, the shares are trading near a 52-week low at 1,931p. A P/E of 9.6 for the current year, falling to a mere 8.4 next year, PEG readouts of 0.6 for both years and a dividend yield of 5.4%, rising to 6%, combine to persuade me that the stock is a bargain-basement buy at the current price.

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G A Chester 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.