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2 growth stocks trading at dirt-cheap prices

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It’s not often that we investors find the trifecta of great valuation, high growth prospects and high dividend yields, but I think £100m market cap independent toy designer Character Group (LSE: CCT) may just fit that bill. It sells toys based on Peppa Pig, Little Live Pets, Teletubbies and Minecraft among others in the UK and overseas.  

Despite rising over 18% in value over the past year, the company’s stock trades at just 10.4 times forward earnings while offering a 3.2% dividend yield. For a cash-heavy, nicely growing business I reckon this could be an attractive entry point.

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It must be said that in the six-month period to February the company’s sales did fall 5.7% year-on-year (y/y) to £61.5m with underlying operating profits collapsing 17.2% to 7.2%m. However, much of this loss can be attributed to a strong comparative period and a conservative approach to stock management over the Christmas period. I believe this makes the sales decrease a one-off, and judging by the market’s bullishness, so do other investors.

Indeed, management remains convinced it will meet analyst expectations for 51p in earnings for the year to August, which would represent a 7% y/y improvement. I believe this is eminently achievable, even with H1 setbacks, as the company’s steadily expanding array of brands remain popular in the UK, which accounts for 75% of revenue, and internationally.

Furthermore, I like that insiders own around 20% of outstanding shares, which aligns their interests with those of other investors and suggests a long-term approach to growing the business. This outlook is clear in the fact that the business has no debt and holds a whopping £18.6m of net cash.

With a great group of properties, solid long-term growth prospects and a highly-experienced management team with skin in the game, I reckon Character Group could be a bargain growth and dividend option.

Can this stock recover from an own goal?

A riskier growth option on my radar is five-a-side football pitch operator Goals Soccer Centres  (LSE: GOAL). The company has run into problems of late with three straight years of falling earnings. But with management rolling out a new plan to redevelop its pitches and expand into the US market, I see reason to take a closer look at the company.

Refurbishing its pitches is starting to pay dividends with like-for-like (LFL) sales for the half year to June rising 2.5%, when accounting for temporary work-related closures and overall group sales up 2.2% y/y to £17.4m. Unfortunately, these refurbishments aren’t cheap and interim results released this morning showed operating profits fell 27.9% to £2.8m in the period. However, I think with its shares trading at just 12 times earnings, investors may be discounting the group’s long-term growth potential.

The main source of growth will be expansion into the US and the 50:50 joint venture announced this morning with Manchester City’s owner will provide £16m in cash and allow the group to use City’s branding in its US centres. The group’s first property in California is already profitable and it has plans to expand to four by Q1 2018.

Goals Soccer Centre isn’t out of the woods yet but with an ambitious turnaround plan at home and long-term growth in the US, I reckon growth-hungry investors should give the company a second look.

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Ian Pierce has no position in any of the 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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