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My 2 favourite low-P/E shares with big earnings potential

It’s easy enough to find undervalued shares for your Self-Invested Personal Pension or Stocks and Shares ISA. The more difficult part is picking those companies with real growth potential.

Even the best easy-access Cash ISA offers just 1.4% interest on your capital. That’s barely enough to cover the cost of inflation. Instead, I would choose shares that trade on a low price-to-earnings (P/E) multiple. That gives me the best chance to grow my wealth over time.

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On a mission

It’s ironic that marketing and advertising specialist The Mission Group (LSE:TMG) doesn’t attract many headlines. Investors just don’t seem that smitten. But dig a little deeper and you might be surprised. A P/E ratio of just 10.5 looks very cheap, given that TMG has turned in decent profits on appreciating revenue for the past five years.

This AIM-listed firm hasn’t yet attracted the attention of many City analysts, whose forecasts shine a spotlight on underappreciated companies across the FTSE. A market cap of just £75m could be another reason this little gem has flown under the radar.

Like one of my best picks of last year, TP Group, the TMG share price has just slowly ticked upwards, adding 60% from its 60p price in February 2019 to a high of 96p in November that year. At last count the shares were trading at a 6% discount from their all time high.

A January trading update for the year ended 31 December 2019 showed the group with £5.8m profits on £159.9m revenue. Chair David Morgan confirmed that TMG should be debt-free by the end of 2020, adding: “More than ever, I am convinced that our positioning as a nimble and entrepreneurial group is right for our times.” I would agree.

Building growth

FTSE 250 housebuilder Vistry Group (LSE:VTY) has a very tidy looking balance sheet, certainly more so than larger competitors like Persimmon.

Last year, the company formerly known as Bovis Homes posted record profits with a net cash position of £362m, up from £126m. This was helped by a 3% hike in the number of completed new homes, a growing average selling price, and land acquisitions producing gross margins of 26% and 25% return on capital employed.

Recent appreciation in the share price means a cracking 6% yield has dropped to more like 4.3%. But we’re not only interested in VTY for the dividends. There are plenty of high-yield FTSE 100 companies that can do that particular job for your money.

The shares are now trading at a very reasonable P/E ratio of 13.8. When taking forecast earnings into account that drops to more like 10, which I say is very cheap for such a quality business.

Vistry said it produced a “significant step-up” in sales across 2019, with the average sales per outlet up from 0.5 the previous year to 0.58 this time round.

Full-year results for the 12 months ended 31 December 2019 are due out on 27 February and with chief executive Greg Fitzgerald highlighting a “strong” forward sales position the share price could go off like a rocket from here.

A top stock with enormous growth potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business.

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has been helping it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 alone it returned a whopping £151.1m to shareholders in dividends and buybacks!

And here’s the really exciting part…

We think now could be the perfect time for you to start building your own stake in this exceptional business—especially given the two potentially lucrative expansion opportunities on the horizon that our analyst has highlighted.

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Tom Rodgers owns shares in The Mission Group. 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.