The Motley Fool

2 cheap growth stocks I’d buy right now

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.

Image source: Getty Images.

The last time I covered convenience food producer Greencore (LSE: GNC), I concluded that the company was well placed to grow in the defensive, rapidly expanding convenience food market after spending $745m to acquire US-based Peacock Foods.

Unfortunately, since then the stock has gone nowhere, but I believe it’s only a matter of time before the market wakes up to Greencore’s prospects. 

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Indeed, today the firm announced yet another upbeat trading performance. For the 13 weeks to 29 December, the group recorded revenue growth of 53.6% on a reported basis to £640.5m, including the contribution from Peacock. Pro forma revenue grew by 7.2% in the quarter.

The group expects to book a one-off, non-cash, credit of approximately $28m in its income statement for 2018 thanks to the reduction in the US corporate income tax rate to 21%. The modification requires a revaluation of Greencore’s US deferred tax assets and liabilities as at September 2017. Going forward, the company’s US business will benefit from the lower rate of corporate income tax on future taxable earnings. 

Divestment to improve earnings 

Greencore also announced today that it had reached an agreement to sell its cakes and desserts business in Hull. The sale of this division was first suggested alongside the group’s full-year results due to the “challenging” trading conditions in the UK cakes and desserts business “characterised by business churn and high levels of inflation.” In other words, this disposal should help improve margins and streamline the business. 

City analysts are expecting Greencore to report earnings per share growth of 8% for the year ending 30 September 2018 and 7% for the following fiscal period as it capitalises on opportunities for growth. With earnings expected to grow at a high-single-digit rate, I believe that the stock’s current valuation of 12.2 times forward earnings undervalues the business and its prospects.

Undervalued tech play 

Another growth stock that I believe could be too cheap to pass up is ZPG (LSE: ZPG). It owns a number of consumer-focused websites including Zoopla, uSwitch, Money, PrimeLocation and Hometrack and City analysts are predicting explosive growth for the company in the years ahead. 

Earnings per share growth of 16% is pencilled in for the year ending 30 September 2018, followed by growth of 15% for the following period. And after the first quarter of the fiscal year, management seems to believe that the company will hit these targets. 

Today ZPG issued a trading statement ahead of its AGM, which noted: “The company has had a good start to the financial year across both divisions, with its websites and mobile apps attracting 53m average monthly visits during the period.” The update goes on to say “management remains comfortable with financial year 2018 market expectations.” Unlike almost all other trading updates, the market notification goes on to say: “Collated consensus figures for FY18 Revenue and EBITDA were £310m and £122m, respectively.”

Based on these numbers, shares in ZPG are currently trading at a forward P/E of 19.4, falling to 16.8 for fiscal 2019. While this valuation might look expensive compared to the broader market, its peer Rightmove is currently trading at a forward P/E of 25.2, and the more extensive Software & IT Services Industry is trading at a median P/E of 18.7. 

So overall, compared to its peers, and considering the firm’s steady growth rate, I believe ZPG’s shares look cheap

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of and has recommended Greencore. The Motley Fool UK has recommended Rightmove. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.