Join our community of smart investors

Cheaper shares with a positive growth outlook

Forecasts can change but some shares look good value for expected growth.
Cheaper shares with a positive growth outlook

 

  • Economic uncertainty means growth targets could be revised 
  • Volatile markets could set-up bargains

Hikma Pharmaceuticals (HIK) tops the UK large cap growth at a reasonable price (GARP) screen, although no company passes 9/9 tests. The manufacturer of out-of-patent drugs has the best reason for failing one test, however: its five-year trailing earnings growth rate is narrowly above 20 per cent. The upper limit is a safety rope in our past earnings growth range (7.5 to 20 per cent) test. On both our custom price-to-earnings growth (PEG) test and a simple three-year forward PEG, the company looks fairly valued rather than cheap. 

In our mid cap screen, one company that’s shares have enjoyed a good run but that still looks reasonably priced is Drax Group (DRX), the  renewable energy and biofuels specialist.  The shares are up 36 per cent in three months but the enterprise value (EV) is just 6.8 times earnings before interest, tax, depreciation and amortisation (Ebitda). Both the PEG ratios we use are showing it is cheap relative to analysts’ growth expectations, too.  As ever, the caveat is screens are a starting point for research and the two tests Drax fails (two halves of year-on-year eps growth and trailing five-year eps growth rate), offer a hint as to questions would-be investors should ask next. 

To continue reading...
Subscribe to Alpha Today and You’ll Get
  • Unlimited access to all of our content
  • The Analyst's round up of companies and updates on his Fantasy Sipp portfolio
  • Broker style company research notes from our small cap expert Simon Thompson
  • Quality, Momentum, Growth at Reasonable Price (GARP) and Dividend Yield stock screens
  • Algy Hall’s monthly value-momentum investment trust screen and portfolio of diverse closed-end funds
Have an account? Sign in