The Motley Fool

Two dirt-cheap FTSE 250 growth stocks I’d buy with £2,000 in June

Image source: Getty Images.

Shares in production company Entertainment One (LSE: ETO) are trading lower today after the firm announced that one of its offerings, Designated Survivor, will no longer feature on ABC past the current series. 

Management is talking with other parties who might be interested in the format, but there’s no guarantee another channel will make an offer. The cancellation is not expected to have an impact on this year earnings, but it is likely to hit the next fiscal period. 

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...

However, despite this setback, I’m still positive on the outlook for the company.

Look past the income

As I have covered before, I believe that Entertainment One’s real value is to be found on the group’s balance sheet, specifically, the value of its content library. 

At the end of March 2017, an independent evaluation put the value of this asset at $1.7bn, or around £1.3bn. At the time of writing, the firm’s market value is just £1.32bn, which implies (if the value of the content library is stripped out) there’s no value on Entertainment One’s future income stream. With this being the case, it’s clear to me that shares in the content company are a steal today.

As my Foolish colleague Royston Wild pointed out at the beginning of last month, Entertainment One’s Peppa Pig franchise has continued to drive growth at the group with earnings in its Family division predicted to have risen 50% year-on-year for the fiscal year to the end of March. 

Based on management’s upbeat forecast, City analysts are forecasting that Entertainment One will report earnings growth of 19% in the year ended March, followed by an expansion of 14% in fiscal 2019, which more than justifies the stock’s current forward P/E of 14.

Looking on these numbers and considering the hidden value in the group’s content portfolio, I believe shares in Entertainment One seem too cheap to pass up at current prices. 

Dirt cheap

Another stock that looks to me to offer hidden value is Just (LSE: JUST). The investment case for this insurance and financial services group is simple… the shares are dirt cheap. 

On every single metric, the company looks undervalued. It’s trading at a price-to-book value of 0.8 and an enterprise-to-earnings, before interest tax depreciation and amortisation value (EV/EBITDA), of 3.4. For some comparison, the market median EV/EBITDA ratio is 11.4! The forward price to earnings ratio is 8.6. 

Too pessimistic? 

On all metrics, the company looks undervalued by around 50% compared to the broader market, that is apart from dividend yield, where 2.8% is below the market average. Still, as the dividend is covered four times by earnings per share, there’s plenty of scope for management to hike the payout further as earnings grow.

Unfortunately, earnings growth is not set to be the group’s strong point. Analysts have pencilled in a fall in earnings per share of 16% in 2018, but growth is expected to return in 2019 with net income rising by 11%.

In my opinion, this bad news is already factored into the stock. What’s not factored in, however, is any possibility of good news. And I believe if the company does perform better than expected, shares in Just could leap substantially higher.

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...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Rupert Hargreaves owns no share 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.

Our 6 'Best Buys Now' Shares

The renowned 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 enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.