The Motley Fool

2 embarrassingly cheap growth stocks I would buy

Finding a share price that will grow is the holy grail for investors. The problem is that it is more difficult than it sounds, especially over a short timeframe, which is why it is recommended that any investor thinks in years rather than months. With this in mind, I’m looking at two shares with potential for growth over the coming years.

Securing growth

Cybersecurity is a hot market right now and a number of companies in the sector have taken advantage of their growth and investor appetite to list on the stock exchange, one notable example being Sophos. But there is in my opinion a better option for investors in the form of Avast (LSE: AVST), which specialises in providing cybersecurity solutions to consumer and small-to-medium sized businesses (SMBs).

For one, Avast is twice as valuable as Sophos in terms of market capitalisation, even though both companies sit within the FTSE 250 index. On top of that, Avast shares are much cheaper for a high-growth company, with a P/E under 14, and as an additional bonus the dividend yield is a not bad 2.2%, with potential for future growth suggested by the latest results. 

The full-year results for the 12 months ending 31 December showed that this is a company geared up for growth. Revenue increased by nearly 24% and operating profit doubled. These are figures that are hard to find amongst FTSE 250 companies and it is why I think the shares look ridiculously cheap right now, especially compared to its nearest competitors. Analysts at UBS rate the shares a buy and are targeting a rise of 33% in the share price to 400p over the medium term. 

Driving growth

BCA Marketplace (LSE: BCA) is a used vehicle marketplace, owning the WeBuyAnyCar brand, which grew its operating profits by 18% in the last full year and increased its dividend by an impressive 27%. These figures point to a company that is also driving in the fast lane.

Surprisingly, this isn’t reflected in the company’s share price, which is now more attractive than it has been in recent times, as the P/E is now at around 16. This is lower than in previous years when it was nearer to 20. Added to that ‘low’ P/E is a dividend yield of 4.5%, so investors get growth potential and an above average income from owning the shares. The struggling share price could well be an opportunity for a long timeframe investor because brakes on the share price are largely a result of Brexit and economic concerns rather than anything the company is doing wrong. Once these investor concerns subside, I think the company could shift up a gear.

The latest annual report showed growth across the business, with WeBuyAnyCar performing particularly strongly, its volume growth was up 12.9% and the company also grew well in the UK and in Europe. There was an expansion of sites in the UK, which should help fuel further growth.

To me both Avast and BCA Marketplace provide potentially huge upside to investors prepared to invest for the medium-to-long term, meaning for at least five years. The companies are growing well financially which should help grow the dividend over time and could the share prices 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.

Andy Ross 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.