With the FTSE 100 rising to record highs, finding cheap shares is proving more difficult for many investors. However, there are a number of stocks which continue to offer dirt-cheap valuations, as well as impressive growth outlooks. Clearly, just because a company’s shares are priced for less than £1 does not necessarily mean they are cheap. But these two stocks priced below £1 appear to have a potent mix of growth and value potential.
Reporting on Wednesday was gold exploration and development company Hummingbird Resources (LSE: HUM). It is on track and on budget to deliver first gold production by the end of 2017. This follows a positive quarter, with the company making progress with its construction operations. It has also entered into an agreement with African Gold Group to develop its gold project. This could ultimately increase both the annual production output and the life of the mine at a similar operational cost.
While Hummingbird Resources is currently a lossmaking business, production is expected to propel it into profitability. This could boost investor sentiment in the short run – especially since the market does not seem to have priced in its future financial performance. The company trades on a forward price-to-earnings (P/E) ratio of just 9, which suggests that it could offer upside potential.
With the price of gold rising already in 2017, its outlook appears to be positive. Concerns surrounding North Korea could propel its price even higher. Similarly, concerns about the global economic growth outlook may lead more investors to purchase gold. This would clearly be good for Hummingbird Resources and may help it to generate higher profitability as well as a rising share price over the long run.
Also offering a share price below £1 at the present time is Gem Diamonds (LSE: GEMD). It trades at 78p versus 38p for Hummingbird Resources and also appears to have a bright long-term future.
Of course, Gem Diamonds is in the midst of a somewhat challenging period. Its bottom line is due to come under pressure in the current year, with a forecast fall in earnings of 83% expected by the market. It has struggled to cope with falling small gem prices and in response has put its new mine in Botswana up for sale.
While this could mean that the stock is relatively volatile in the short run, it is due to post a successful turnaround in 2018. Its bottom line is expected to rise by 459%, which puts it on a forward P/E of just 8.7. This suggests that it offers a wide margin of safety and could be worth buying for the long run.
Certainly, Gem Diamonds has a somewhat unclear future. Diamond prices may fall and this could negatively impact its financial performance. However, with a low valuation and upbeat forecasts, it appears to have an attractive risk/reward ratio.
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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.