Investors in tools and equipment hire company Speedy Hire (LSE: SDY) gained a boost on Monday. The company released a trading update which stated that adjusted profit before tax for the year is now expected to be ahead of previous expectations.
The impact of this on the company’s share price was positive. The stock increased in value by around 10%. However, it still appears to offer excellent value for money alongside one of its industry peers.
Speedy Hire’s financial year to 31 March 2018 looks set to be a highly profitable one for the business. Its hire fleet optimisation programme continued during the year. Return on capital employed for the year is expected to have risen from 7.7% in the previous year to around 11%.
Average asset utilisation in the first 11 months of the financial year was 55.4%, which is 4.3% higher than in the prior year. And with acquisitions performing well, the overall outlook for the business appears to be positive.
In fact, Speedy Hire is forecast to post a rise in its bottom line of 28% in the current year, followed by further growth of 17% in the next financial year. Clearly, such growth rates are subject to change and with the company being relatively cyclical, a margin of safety is likely to have been factored-in by investors.
However, with the company having a price-to-earnings growth (PEG) ratio of 0.5 at the present time, it appears to offer excellent value for money. As such, now could be the right time to buy it ahead of further growth potential.
Also offering strong growth potential is equipment rental specialist Ashtead Group (LSE: AHT). The company has an excellent track record of growth, with its bottom line increasing at a double-digit pace in each of the last five years. During that time, its net profit has risen at an annualised rate of 43%, which highlights just how impressive its performance has been.
Looking ahead, further double-digit growth is forecast. The company is expected to report a rise in its bottom line of 25% in the current year, followed by further growth of 21% next year and 12% the year after. This suggests that it could be worthy of a premium valuation, given its potential to generate above-average growth over a sustained period of time. However, with the stock having a PEG ratio of 0.9, it seems to offer significant upside potential from its current price level.
Of course, there is scope for Ashtead’s financial performance to come under pressure if the macroeconomic outlook deteriorates. However, with what seems to be a sound business model and a wide margin of safety, the company could offer strong capital growth potential for the long run. Therefore, it could be worth buying now after the market’s recent weakness.
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Peter Stephens 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.