Now, though, the company appears to have a brighter future. Spending on the military looks set to rise across the developed world, while a relatively efficient business model could mean that further share price gains are ahead. As such, now could be the perfect time to buy the defence company.

Improving prospects

With the developed world now experiencing improved economic performance following the financial crisis, defence budgets look set to increase. A period of cuts for the military may now be at an end, and this could lead to a potential tailwind for companies across the sector.

Of course, Donald Trump’s election as US President could prove to be a key growth catalyst for companies operating in the industry. He has been clear on his desire for higher spending on defence for a significant period of time and with it now becoming a reality, the prospects for the sector appear to be stronger than they have been since prior to the financial crisis.

Total returns

While BAE has risen by 40% in the last couple of years, the company continues to offer a relatively wide margin of safety. Its price-to-earnings (P/E) ratio of 15 suggests that it is fairly priced given its forecast earnings growth rate of 7% for the next financial year. And with it currently yielding 3.9% from a dividend, which is covered around twice by profit, its total return potential seems to be high.

Certainly, defence stocks are not immune to the volatility seen in the wider market in recent months. However, with that potential tailwind, they could perform better than the FTSE 100 over the medium term.

Impressive performance

Also offering strong growth potential after a period of gains is property fund manager and investor First Property Group (LSE: FPO). Its shares have risen by 177% in the last five years, with an impressive financial performance likely to have been a key catalyst.

The company released a positive trading update on Monday, with it announcing that profit, before tax, for the year to 31 March is expected to be in line with market expectations. During the year, the company was able to deliver a 31% rise in funds under management, with almost all of the growth  resulting from new property investments in the UK.

Looking ahead, First Property Group is expected to report a rise in its bottom line of 4% in the current year. While not a particularly high rate of growth, its P/E ratio of 9 suggests that it could offer upward re-rating potential. And with a dividend yield of 3.5%, which is covered 3.6 times by profit, its total returns could continue to be high over the coming years.

The post Why the BAE share price could continue rising after 40% gain appeared first on The Motley Fool UK.

Managing plenty of growth 

One of them is £60m market cap property fund manager First Property Group (LSE: FPO), which reported a whopping 54% year-on-year rise in earnings per share for the year to March and whose shares trade at 7.9 times earnings.

While investing in property companies at this point in the economic cycle will rightly scare away many investors, FPO may be a less risky option than it first appears. The first reason is that its primary business is investing in property for institutional investors, which means recurring fee revenue and lower risk of a catastrophic hit to the income sheet when the market turns sour.

Funds managed on behalf of clients account for 51% of the group’s assets under management and last year they generated £2.05m in revenue, although a lack of performance fees meant pre-tax profits were only £0.4m.

Another reason FPO may be a more appealing choice than domestic homebuilders or REITs is that in recent years it has concentrated on increasing its exposure to Poland and Romania. These two fast-growing markets now account for around half of all assets under management and the entirety of the company’s directly owned property portfolio.

Buoyant property markets in each of these Eastern European nations made a huge contribution in the year with pre-tax profits from directly owned properties increasing from £9.9m to £10.3m. Although investing in a company this reliant on foreign markets may scare away some investors, FPO’s decision to diversify appears a wise one to me given the state of the UK market.

Furthermore, with an increasingly healthy balance sheet, a decent 2.8% dividend yield and fair valuation I’ll definitely be taking a closer look at First Property Group in the coming quarters.

Few problems to paper over 

A more domestic-centric option is high-end wallpaper designer and manufacturer Walker Greenbank (LSE: WGB). The company has a great record of five straight years of earnings increases and its shares trade at a relatively tame 12.9 times forward earnings.

The company has done well to cope with the temporary closure of its Lancaster manufacturing facility due to flooding in 2015 and with this site now back to full capacity the stage is set for a period of renewed high growth. This growth is coming through increased international exposure and the acquisition of the Clarke & Clarke brand in late 2016, which added new styles, distribution links and international cachet.

The benefits of the acquisition are already being felt as total sales rose 5.2% year-on-year in 2016 and underlying operating profit, which discounts the effect of the flood and acquisition costs, rose 19.5% to £9.8m. As the management team focuses on finding new highly profitable international licensing agreements and domestic sales recover following the flood, the future appears bright for the company.

With good growth prospects, just £5.3m in net debt and quite a low valuation, Walker Greenbank is definitely on my watch list.

The post 2 top growth stocks trading at bargain prices appeared first on The Motley Fool UK.