Finding growth stocks which trade on attractive valuations is never easy. In many cases, investors have priced-in their upbeat outlooks, and their margins of safety are therefore relatively narrow.
However, there are always buying opportunities available. That’s especially the case following a major fall in the wider stock market. With that in mind, here are two stocks that could offer impressive returns in the long run.
Reporting on Tuesday was cross-border payment services company Earthport (LSE: EPO). The company’s half-year results showed that revenue grew by 8% compared to the prior period. Its transactions and payment volume continued to be robust, with payment volume increasing by 12%. Average revenue per transaction was up by 9% to £2.87, with this largely being caused by the discontinuation of the low-value e-commerce business.
The company enters the second half of the year with a record pipeline. This could put it in a strong position to deliver further growth, with there being particular opportunity within the banking and e-commerce sectors. The business is still aiming to become cash flow break-even by the end of the next financial year. This could have a positive impact on its share price performance and may show investors that it has the capacity to deliver strong returns.
Clearly, Earthport is a relatively small and unprofitable business which comes with a significant amount of risk. However, with its shares falling by 60% in the last year, it could offer good value for money at the present time. For less risk-averse investors, the stock could be worth a closer look for the long term.
Offering a lower-risk opportunity for the long term within the software and computer services industry is Sage Group (LSE: SGE). The company has an excellent track record of delivering earnings growth, with its bottom line having risen in each of the last five years. Further growth is expected during the next two years, with the company’s bottom line forecast to rise by 11% in the current year, followed by 10% next year.
Despite such a solid growth profile, the company trades on a price-to-earnings growth (PEG) ratio of just 1.8. At a time when the FTSE 100 has generated strong growth over a sustained period, this suggests that the company offers a wide margin of safety that could lead to share price rises over the coming years.
With Sage Group expected to yield around 3% next year, it could offer income investing potential. Dividend payments are due to be covered twice by profit next year, which suggests that there could be further scope for increases in payouts to shareholders over the medium term. As such, the income potential and capital growth prospects of the stock appear to be highly enticing even in a volatile period for the wider stock market.
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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended Sage Group. 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.