2 dirt cheap stocks growing by leaps and bounds

The market appears to be discounting the double-digit growth these two firms are continually posting.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The financial year to October was another good one for self-storage chain Safestore (LSE: SAFE) as the firm managed to improve just about every important metric used to judge its progress. But even with another solid period of growth behind it and a share price that’s risen over 40% in the last year, the company still looks reasonably valued to me at 12.9 times trailing statutory earnings.

In fiscal year 2017 the group’s revenue jumped 10% in constant currency terms to £129.9m as it opened six new outlets, acquired 12 during the year, and boosted like-for-like sales by a very respectable 3.3%.

LFL growth was driven by an increase in same-store occupancy rates from 73.7% to 75% and a 1.3% uptick in constant currency average storage rates to £27.35. Looking ahead, there’s good reason to believe there’s further progress to be made on these metrics as Safestore integrates its 24 newly-acquired properties, which have lower occupancy and storage rates.

Furthermore, demand should remain robust as the trend among consumers towards living in small flats that can’t fit all their belongings continues as the price of housing remains high in both the UK and Paris where it operates. There’s also good reason to expect the company to continue growing through acquisition and organic store openings with impressive free cash flow of £50.3m and a decent loan-to-value ratio of 36%.

While the company’s shares look far less cheap on an underlying basis, whereby earnings per share are 23.3p instead of 37.4p excluding the gain on investment properties, Safestore is still a highly cash generative property business that may attract investors who are bullish on the sector’s medium-term outlook.  

Ramping up for further growth

Another fast-growing business that’s looking cheap to me is JD Sports Fashion (LSE: JD), which trades at a relatively sedate 15.4 times forward earnings despite more than doubling revenue and growing pre-tax profits tenfold over the past five years alone.

Of course, markets are forward-looking, but the outlook for JD Sports still seems quite bright to me as the athleisure trend continues to gain converts and its larger rival, Sports Direct, seems to find new ways to shoot itself in the foot by the day.

In the half year to August, the group’s sales rocketed a full 41% to £1,367m as LFL sales increased 3%, new stores were opened, outside brands were acquired and online sales took off. While gross margins did fall a bit to 47.4%, operating profits still grew a robust 33% year-on-year to £103.3m and the company’s net cash position remained very robust at £222.7m.

This war chest gives management significant scope to continue its international expansion through store openings and an increased online presence. With just 452 stores in Europe and 39 in Asia against 1,480 JD branded ones in the UK alone at period end, the scope for international expansion is rather mind boggling.

With cash in hand, highly profitable operations and plenty of expansion potential, I think JD Sports could be a bargain pick-up for the long term at its current valuation.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »