Shares offering growth at a reasonable price are never easy to find. Usually, stocks with impressive earnings outlooks become increasingly popular among investors. This can mean that their valuations increase to excessive levels, which reduces their investment appeal.
However, even with the Footsie trading within 10% of its highest-ever level, there are still opportunities to generate relatively high capital returns. Here are two stocks that despite their strong profit outlooks continue to trade on low valuations.
Improving performance
Reporting on Monday was provider of real-time technologies for networking solutions and medical laboratory systems BATM (LSE: BVC). The company’s shares moved 7% higher following its trading update, with guidance being updated for the 2017 financial year after a successful second half. It now expects to report revenue for the year which are 17% higher than the previous period, with EBITDA (earnings before interest, tax, depreciation and amortisation) expected to be $7m versus $2.8m in 2016.
Growth in both of the company’s divisions was responsible for the higher-than-expected revenue growth. The Networking & Cyber division generated higher sales due to rises in the company’s existing ICT services and solutions business. In the Bio-Medical division, expansion was driven by stronger sales in the distribution unit. This was mostly based on diagnostic and molecular biology products and services.
Looking ahead, BATM is forecast to deliver a black bottom line in the current year. It is then due to follow this up with growth of 272% in 2019, which could help to improve investor sentiment in the stock. With it trading on a price-to-earnings growth (PEG) ratio of just 0.2, it seems to offer a wide margin of safety and could post further stock price gains in the long run.
Solid growth potential
Also offering growth at a reasonable price within the technology space is FTSE 100-listed Micro Focus (LSE: MCRO). The company has a solid track record of earnings rises, with its bottom line having risen at an annualised rate of 14% in the last five years.
Looking ahead, further growth is forecast. The acquisition of HPE could help to diversify the business and create additional growth catalysts for the long run. In the near term, the group is due to report a rise in earnings of 12% this year, followed by 13% next year. For a large-cap stock, this is relatively high and yet the company has a PEG ratio of just 1 at the present time. This suggests that investors have not yet factored-in its outlook, with there being a wide margin of safety on offer.
In addition, Micro Focus has a dividend yield of 3.6%, with shareholder payouts being covered 2.1 times by profit. This indicates that it has a mix of income, growth and value potential. As such, now could be the perfect time to buy it – even with the FTSE 100 still trading above 7,000 points.
