I examined the soaring IQE (LSE: IQE) share price earlier this year, and though the shares were significantly down from their late 2017 peak, I still reckoned they were too high. I was convinced that investors had piled onto the bandwagon and pushed IQE to overvaluation, as so often happens with hot new growth stocks.
But the shares have since lost a third of their value. And though we’re still looking at a high forecast P/E of over 26 for this year, that would drop to only about 17.5 should 2019 predictions come good. The forecast 2019 PEG stands at an attractively low 0.4 too.
That doesn’t look stretching for a company with strong growth characteristics, and the advanced semiconductor wafer producer is finally starting to look attractive to me.
Back to growth?
While it’s admittedly early days, the first half of this year saw adjusted pre-tax profit grow by 19%. The full-year is not expected to bring in any overall earnings rise, however, as the company is in a big investment phase aiming to establish long-term growth after its promising start. And the City’s experts are expecting that strategy to feed through to a jump of nearly 50% in earnings per share for 2019.
New chief financial office Tim Pullen should be on board early in the new year, coming over from chip designer ARM — so he has an impressive pedigree.
As with many high-tech growth companies, I think the next year or so could see significant volatility. But once we get closer to a resumption of EPS growth, I could see a boost in confidence and a new phase of share price appreciation.
Oil services
Hunting (LSE: HTG) is another stock I see as having potential for a growth phase, though its shares have gone off the boil a little in 2018, losing more than 25% of their value since a peak in May.
But the oil industry services company has still enjoyed a nice recovery after its share price slump, and Tuesday’s Q3 update spoke of revenues remaining steady with “sustained demand for the group’s perforating products and accessories.”
That is largely reliant on US onshore markets, though, with demand generated by onshore shale activity. Meanwhile, US offshore and international business remains tough. The firm puts this down to geopolitical tensions and “lack of confidence in commodity prices due to the recent downturn,” as oil has slipped back to around $75 per barrel from a peak of over $86 early in the month.
Investing for growth
Hunting has continued with working capital investment, but with $34.9m in net cash at 19 October (before paying $6.6m in dividends), liquidity looks solid to me.
The company says it is “comfortable with current market consensus,” which supports a forward P/E of 16, dropping to 15.6 in 2019 if the expected return to earnings growth continues. With the dividend set to return too, I see Hunting as an attractive investment — and what a great contrarian pick it was during the oil price crisis!
