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FTSE 100 growth stock Vodafone and 10%-riser On The Beach could help you retire early

While the FTSE 100 may be trading at a relatively high level at the present time, it is still possible to find growth stocks trading at fair prices. One example is FTSE 100-member Vodafone (LSE: VOD). Although its shares have fallen heavily in recent months, it has upbeat earnings growth prospects for next year and could offer a wide margin of safety.

Similarly, FTSE 250 travel company On The Beach (LSE: OTB) could deliver impressive levels of capital growth. Its shares gained over 10% on Thursday following the release of a trading update and news of an acquisition.

Improving outlook

The performance of On The Beach in the 19 weeks to 15 August 2018 has been somewhat mixed. Hot weather in the UK has suppressed demand for foreign holidays. This has hurt the company’s revenue growth, but has also meant that marketing spend has been lower. As a result, its profit performance has been in line with expectations. It is due to meet guidance for the full year, which suggests that its business model may be relatively resilient.

The company also announced the acquisition of Classic Collection Holidays on Thursday for a total consideration of £20m. The deal fits with On The Beach’s strategy to leverage its capability to access the 5m short-haul beach holidays that are booked offline each year.

Looking ahead, On The Beach is forecast to post a rise in earnings of 20% in the current year, followed by further growth of 25% next year. Despite this strong rate of growth, it trades on a price-to-earnings growth (PEG) ratio of 0.7, which suggests that it could offer a high level of capital growth.

Changing outlook

Vodafone could also prove to be a good value growth stock for the long term. Its bottom line is expected to fall by 7% in the current year before rising by 15% next year. Its strategy appears to be performing well, with it remaining competitive within the quad-play environment due in part to recent acquisitions. And with it having what appears to be a strong balance sheet and resilient cash flow, it could engage in further M&A activity over the coming years.

Of course, Vodafone’s share price has significantly underperformed the FTSE 100 over the last year. It is down by over 20% while the wider index has gained around 2% in the same time period. Investors may be unsure about its near-term performance ahead of the previously-announced departure of its CEO later in the year.

But this could create a value investing opportunity for new investors, since the stock now has a PEG ratio of 1.3. This suggests that it could offer growth at a reasonable price, with its diverse business model providing lower risk than many of its telecoms industry rivals. As such, now could be the right time to buy it for the long term, with it having the potential to help investors to retire early.

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Peter Stephens owns shares of Vodafone. 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.