Cosmetics firm Warpaint London (LSE: W7L) released a trading update this morning ahead of its AGM. Despite saying it continues to trade in line with expectations, the shares are currently 11% down at 215p, valuing the business at £139m.

The company listed on AIM as recently as November last year but is an established, profitable and highly cash generative business. I think the shares got a ahead of themselves when they reached over 300p last month — from an IPO price of 97p — but are now looking a more attractive proposition.

Excellent value for money

Warpaint’s flagship W7 brand, which offers quality at affordable prices and focuses on the 16-30 age range, has grown organically every year since its inception in 2002. The range is sold into high street retailers and independent beauty shops across the UK, Europe, Australia and the US.

In today’s update, the company said it had seen double-digit sales growth in the US and encouraging growth elsewhere, with the exception of Europe where sales were flat. It added that its e-commerce strategy is on track and is becoming a growing contributor.

The company is forecast to post revenue of £32m this year, followed by more than £38m next year, with net profit increasing 27% from £6m to £7.6m. This gives a price-to-earnings growth (PEG) ratio of just 0.7, which indicates excellent value for money.

This is an easy-to-understand business, the cosmetics market tends to be resilient through economic cycles (the so-called ‘lipstick effect’) and the founder directors are industry veterans who retain a significant stake in the company. These positives and the attractive valuation make this a growth stock I’d consider buying at the current price.

Major acquisition

Also releasing news this morning was AIM-listed firm Michelmersh Brick (LSE: MBH). Its shares are currently trading 11% higher at 80p, valuing the business at £65m.

The company announced it has acquired Carlton Main Brickworks Limited for a net consideration of just over £31m. So this is a major acquisition given Michelmersh’s market cap. The deal is being financed through new loan facilities, existing cash resources and the issue of shares, which will dilute existing shareholders by less than 6%.

It looks a good acquisition, adding significant scale, broadening Michelmersh’s markets and providing cross sales opportunities and product synergies. More immediately, it’s also “expected to be significantly earnings enhancing in the current financial year.”

Galvanising growth

Ahead of today’s news, Michelmersh was forecast to deliver a pre-tax profit of £4.4m for 2017, while Carlton arrives having done £2.6m in its last financial year. Of course, Michelmersh will now have borrowing costs (it was previously debt-free) but management said the increased operational cash flow of the group will assist in servicing and repaying the debt, as well as supporting further investment and dividends.

I estimate Michelmersh is trading on a mid-teens P/E but with the Carlton acquisition set to galvanise earnings growth, this is another stock I’d consider buying today.

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G A Chester has no position in any 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.

Growth potential

While the outlook for the building supplies sector is somewhat uncertain, Michelmersh (LSE: MBH) appears to offer a sound investment case. The manufacturer of bricks and supplier of building materials seems to have significant scope to increase dividends at a rapid pace. A key reason for this is the fact that dividends are covered almost twice by profit. While a portion of profit needs to be reinvested in the company for future growth, a higher dividend payout ratio could be ahead following the quadrupling of shareholder payouts in the last two years.

In the long run, the building supplies industry is likely to deliver relatively impressive growth. Although the UK economic outlook may be somewhat uncertain, demand for housing remains high. And with population growth likely, as well as a lack of supply of housing, the industry appears to have a relatively healthy long-term outlook.

Although Michelmersh currently yields just 3.1%, its dividend growth prospects could help to push its share price higher. Since it trades on a price-to-earnings (P/E) ratio of 14.8 versus a historic average of 24.9 in the last five years, there seems to be upside potential on offer over the medium term.

Dirt-cheap income play

While Michelmersh may have a P/E ratio that is higher than many of its sector peers, fellow building supplies company Forterra (LSE: FORT) has a rating of only 8.6. This indicates that there is substantial upward re-rating potential on offer, which could indicate the company also faces a difficult future.

However, this does not seem to be the case. Although the wider industry faces a degree of uncertainty, Forterra is forecast to record a rise in its bottom line of 7% in the current year and a further increase in earnings of 9% next year. This shows that the company’s current strategy is working well. It also means that Forterra trades on a price-to-earnings growth (PEG) ratio of around one, which suggests its above-average growth is available at a very reasonable price.

In terms of dividends, the company has a yield of 4.5%. This is around 80 basis points higher than the FTSE 100’s yield. Since Forterra’s dividend is covered 2.6 times by profit, there is scope for it to rise significantly and remain sustainable. In fact, it could easily increase at a double-digit rate over the next couple of years without putting the business under pressure. This could lead to improved investor sentiment and a higher share price.

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Peter Stephens has no position in any 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.

Bricking it

Shares of Michelmersh were dumped like, well, a ton of bricks when the market opened this morning, sending the price crashing almost 20% to 51p.

After a decent performance in a flat market in the first half of the year, the company said today that its “ability to make the previously expected pricing gains in the second half has been impacted by average selling prices not rising to the levels anticipated and increased competition.”

Management warned that it now expects revenue and profit to be “at or around a similar level to that reported for the full year 2015.” That’s to say, £29.1m revenue and £4.6m pre-tax profit versus a current consensus of £31.9m and £5m.

Furthermore, the board added that “falling average selling prices across the market in 2016 suggest there will be little or no recovery in prices at the start of 2017.”

Not all bad news

There were some positives in the trading update. The order book is 5% up from the half-year stage, cost savings have been identified and strong cash flow means cash at the year end is expected to “meet or exceed” the board’s previous expectations.

After today’s fall in the shares, Michelmersh is valued at £33.3m, which is an attractive 31% discount to last reported tangible net assets of £48.1m. The P/E is reasonable at 11.5 and management says it can continue “to reward investors with a steady growth in dividends.”

I think this is a nice little business, which should do well over the long-term, but with earnings looking likely to be subdued for the foreseeable future, potential investors need to decide whether a 2.2% dividend yield is sufficient compensation.

Bargain of the decade?

At a share price of 2,460p, housebuilder Berkeley is on a forecast P/E of just 6.3. Furthermore, at last month’s AGM, the board reaffirmed its intention to pay dividends totalling £10 a share over the next five years, giving an annual yield of 8.1%.

Bargain of the decade or too good to be true? The company’s shares are 25% down from the 3,285p they were trading at just before the EU referendum. This reflects the market’s concern about the potential impact of Brexit on the housebuilding sector generally, but also on Berkeley specifically, because of the company’s focus on London.

Berkeley says forward sales provide good visibility over the next two years, but that it will be tailoring its capital investment into new phases and developments for delivery beyond that “to the market demand.”

What that demand will be remains to be seen, but the earnings and dividend risk appears to be to the downside. Certainly, that’s how the shares are being priced. Berkeley could be a bargain, if the market’s fears turn out to be overly pessimistic. However, it doesn’t always pay to go against the market, and this one is a tough call in my view.

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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended Berkeley Group Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Despite processing invoices of £140bn, including 70% of the FTSE 100 and 72% of the Fortune 500, Tungsten generated revenue of just £26.1m and made an EBITDA loss of £18.7m. Net operating cash burn was £21.6m, deteriorating from £9.3m in H1 to £12.3m in H2.

Tungsten reckoned in May that it could “become cash flow positive by the end of FY17”. However, today it said it’s “committed to achieving monthly EBITDA breakeven during calendar 2017,“ (my emphasis).

While there’s no immediate threat of a cash crunch (the board expects to have “cash in excess of £20m” at 30 April 2017), a share price of 44p, giving a market cap of £55m, looks too rich to me for a company where cash break-even is a relatively distant and uncertain prospect.

Profitable and cash-generative

UK brickmaker Michelmersh Brick (LSE: MBH) is a similar sized company to Tungsten — having a market value of £46m at a share price of 57p. It generates a similar level of revenue, being £29m for the trailing 12 months (TTM), following half-year results released today.

There the similarities end. Michelmersh is profitable and cash-generative. Statutory operating profit works out at £4.6m (TTM), with net operating cash flow also £4.6m. Earnings per share (EPS) is 4.54p, giving a reasonably attractive price-to-earnings (P/E) ratio of 12.6. And with a 1p annual dividend expected to rise to 1.2p this year, the forward dividend yield is a useful 2.1%.

The Brexit result has created some uncertainty, and housebuilders may become more cautious in building. However, with a chronic under-supply of housing, and brick imports falling as sterling has weakened, I rate Michelmersh a buy.

Growth and income

Vodafone (LSE: VOD) released an encouraging Q1 trading update on Friday with organic service revenue up 2.2%, ahead of the analyst consensus of 1.9%.

This result was achieved despite a 3.2% negative drag in the UK, where teething problems with a new IT system carried on from the previous quarter, leading to continuing problems with customers’ bills and a flood of complaints. However, the situation is already improving and the company reiterated its financial outlook for the full year to March 2017.

Analysts expect EPS to rise 30%, giving a P/E of 36 at a share price of 236p. That’s a high multiple, but the price-to-earnings growth (PEG) ratio is a reasonable 1.2. Furthermore, the dividend yield is forecast to be comfortably above 5%, and could be boosted when translated back to sterling because Vodafone is switching to euros as its reporting currency this year.

I’m not concerned that the dividend isn’t covered by ‘paper’ earnings, because free cash flow is on the rise after a period of heavy investment. Indeed, Vodafone has guided on free cash flow of “at least €4.0bn” (before M&A, spectrum and restructuring costs), while a modestly increased dividend will cost €3.9bn.

Vodafone looks set for a period of strong growth, and with the add-on of a highly attractive dividend yield, I rate the shares a buy.

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G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.