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2 growth stocks that look absurdly cheap right now

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Finding shares that offer growth at a reasonable price can be challenging. After all, the stock market has risen significantly in recent years and this has left some stocks with a narrow margin of safety.

However, there are still a number of companies that could offer significant upside potential. Certainly it may be more difficult finding them in today’s bull market, but here are two stocks that could be worth a closer look given their outlooks and valuations.

Improving performance

Reporting on Monday was teleradiology specialist Medica Group (LSE: MGP). It was able to deliver an 18.2% revenue rise during the year, with its NightHawk out-of-hours reporting service delivering sales growth of 24.1%. There was also progress in its Routine Cross Sectional division, where revenue was up 19.4%, while Specialist services and Independent revenue was 18.1% higher than in the previous year.

During the year, the company was able to deliver increasingly complex services while also increasing the number of radiologists under contract by 20%. With demand for its services increasing, it continues to have a relatively positive outlook for the long run. So far in 2018, the company is trading in line with expectations, with double-digit revenue growth anticipated.

In the present year, Medica is expected to report an 11% rise in earnings, followed by further growth of 19% next year. The company trades on a price-to-earnings growth (PEG) ratio of just 0.9, which suggests that it offers good value for money. As such, and with demand for healthcare services set to increase over time due to changing demographics, the prospects for the business appear to be impressive.

Low valuation

Also operating within the health care and equipment services sector is NMC Health (LSE: NMC). The company has an excellent track record of growth with its bottom line increasing in every one of the last five years. During that time, earnings have risen by 25% per annum. This suggests that the business has a high and consistent growth rate that could continue over the medium term.

Looking ahead, NMC is expected to report a 43% rise in its bottom line in the current year, followed by growth of 23% next year. Despite such a high rate of growth, which could continue over the long run, the stock trades on a PEG ratio of just 1.2. This suggests that the company’s share price could generate high returns in future years.

At the same time, risks seem to be relatively low. The sector in which it operates is generally consistent and defensive, which means that it could be worthy of a premium valuation over time. As such, from a risk/reward perspective, NMC could be worth buying now for the long run – especially since demand for healthcare products and services is due to increase.

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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.