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This stock has shed 30% of its value! Could it spring back to life in June?

I won’t pretend VP (LSE: VP) isn’t without its risks. The specialist equipment rental group’s share price has dropped considerably over the past six weeks amid news the Competition and Markets Authority (CMA) is investigating “anti-competitive conduct as regards the supply of groundworks products in the UK.” It’s a review which could have severe ramifications on the small-cap’s excavation support system’s business Groundforce.

It could be argued, though, the 30%-plus stock price fall since mid-April, a drop which leaves VP dealing on a cheap forward P/E ratio of 7.1 times, more than bakes in the uncertainty created by the CMA probe.

I certainly believe this low rating could also prove the basis for a price spike when full-year results are unpacked on June 4. Several weeks ago, the company advised it “has made further progress both within the UK and the International divisions” since November’s interims and that, as a consequence, numbers for the financial year ended March “will be well ahead” of the prior year. Comments suggesting this momentum has continued could give market appetite for the stock a huge dose of rocket fuel.

Stunning value, BIG dividends

VP also has a long record of earnings growth and so it’s not surprising City analysts are expecting the bottom line to continue swelling — rises of 8% and 11% are forecast for fiscal 2020 and 2021, respectively.

And this isn’t a great surprise, given the company’s resilience in tricky trading conditions and its commitment to M&A action. In the past fortnight, it sealed the £3.3m acquisition of Sandhurst Limited, a supplier of specialist excavator attachments to a wide variety of industries.

In line with these bubbly profits estimates, dividends are expected to continue rising at quite a pace.  As I type, payouts of 32.1p and 34p per share are predicted for this year and next, up from the anticipated 30.2p reward for the year just passed. Consequently, forward yields of 4.6% and 4.8% can be enjoyed.

Safe as houses

What’s more, there’s plenty of reasons to expect the business to make good on these predicted dividends. First of all, these estimates are covered by anticipated earnings of between 3.1 times and 3.3 times through to the close of next year, comfortably above the accepted safety watermark of 2 times.

Net cash flows from operating activities at the business swelled 20% year-on-year as of September, to £29.7m, a result which encouraged it to lift the interim dividend 21% to 8.2p per share.

Such is the strength of VP’s balance sheet that it can continue raising dividends at a rate of knots while pursuing its bold M&A policy. 

There’s a lot to like about VP, I believe. And I wouldn’t be surprised to see fresh financials scheduled for the first week of June prompt a fresh spurt in buying activity.

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Royston Wild 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.