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Three cheap shares awaiting growth catalysts

A look under the hood of three companies to assess the shares' chances of positively re-rating.
Three cheap shares awaiting growth catalysts
  • Low stock ratings are a good place to start hunting for value
  • Poor earnings quality ensures some shares are 'perma-cheap'

The three stocks discussed this week have very different dynamics and drivers which in two cases seem to have little to do with the business’ trading performance. A low stock rating is always a good place to start when hunting for value, although many companies are ‘perma-cheap’ stocks due to quality of earnings (specific or industry); above average EPS growth is another obvious draw, but often even that is not enough to propel a share price up. Our stocks this week highlight the need to ‘lift the hood’ and understand the story as well as (perhaps even instead of) just relying on the primary valuation metrics. 

  • Renishaw (RSW)  – this is the best-in-class in the field of metrology (the science of technology of high precision measure). It is very well regarded and offers double-digit earnings per share (EPS) growth through product innovation and a positive industry backdrop. A slight problem is that RSW behaves more like a private than a public company, owing to its founders owning more than half the stock. However, this creates an interesting dynamic as these founders are looking to sell the business: an aborted sale in 2021 saw the shares speculatively approach £70 (today nearer £40). Another attempt feels inevitable and with the stock trading below the sector average (it deserves a small premium) and a buyer having to pay a premium for control, the shares look cheap. 
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