Why many investors like Aveva 

There is more than one reason why an investor may think the Aveva share price looks tempting. For one thing, there is its history. Aveva shares have roughly doubled over the last five years. They have almost quadrupled since 2010 and have increased approximately 40-fold since its stock market debut in 1997.

Other investors may be attracted by Aveva’s impressive balance sheet. The company’s assets are worth almost four times the value of liabilities, and current assets are worth only slightly less than total liabilities.

Other investors may like the latest annual report. In the year ended March 2020, revenue was up 8.8%. Profit before tax increased by 97%. Others may see the recent fall in its share price as suggesting it’s good value. And others may look at the dividend. Yield is around 1.1%, which may not seem unusually high, but that is a pretty good yield for a stock that performed so well. 

All of the above represent good reasons to look closely at the Aveva share price. I have another rationale for liking the stock, however. 

Why I like Aveva shares 

For investors. Aveva’s appeal lies with the word ‘digitisation’. As its CEO Craig Hayman, recently said: “We are focused on being digital in everything that we do”.

We live in unusually uncertain times. No one knows how the economy will perform once the Covid-19 pandemic finally comes to an end. Even so, I think it is a pretty good bet that we will see business and industry accelerate its adoption of digital technologies, such as AI, remote collaboration tools, and the so-called internet of things (IoT). The digital economy that has been emerging during the crisis is here to stay.

Aveva helps make that digital economy happen. It is in the business of creating industrial software and providing cloud services, and the industrial IoT is fundamental to its business model.

Critics warn that Aveva is too focused on the oil and gas sector. This sector has taken a big hit because of Covid-19. Supporters respond by saying that since its recent acquisition of Schneider Electric’s industrial software business, it has become more diverse.

Indeed, in its latest report, the company emphasised how it is growing in new markets. These markets include water & wastewater utilities, power utilities, facility and campus managers, transportation operators, and data centres.

More to the point, its technology is supporting the evolution of smart cities, one of the cornerstones of the digital economy. For example, Aveva is helping create smart energy grids.

Expertise applies across sectors 

The core strength of this company is its expertise. Industrial software and the industrial IoT are going to be significant growth areas in the digital economy. Aveva’s historical focus in oil and gas was the means by which it created expertise. Now its inherent technical strength can be applied to multiple sectors worldwide.

That is why I think that the Aveva share price is going to continue where it left off at the beginning of this year, and grow impressively year in, year out.

The post If you want to invest in the digital economy then Aveva shares are just the ticket appeared first on The Twelfth Magpie.

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Michael Baxter has no position in any of the 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.

Is the P/E ratio right?

To test how useful it is, I have picked out two FTSE 100 stocks with wildly different ratios, to decide which is the better buy.

Measured by its P/E, Russian steel producer Evraz (LSE: EVR) is one of the biggest bargains on the FTSE 100, trading at a meagre 3.12 times earnings. That is a fraction of the index average of just over 18 times. You don’t often see £5.85bn companies going so cheap.

At the other end of the scale, engineering data and design IT systems specialist Aveva Group (LSE: AVV) looks astonishingly (reassuringly?) expensive at just over 50 times earnings.

Evraz

Evraz has another astonishingly tempting figure – a forward yield of 12.5%. Cover is 1.3, which is relatively low (2 is ideal), but surprisingly high given the bumper payout.

You won’t be surprised to hear the Evraz share price has had a bad time, falling almost 40% in the last six months (although it is still up 209% over five years). It suffered a bruising after chairman Alexander Abramov and other top shareholders dumped tens of millions of shares in March, and again in July, without explaining why.

The group has also been hit by fears over a slowing global economy, and particularly China, as steel demand slumps, knocking revenues down 6% to $4.2bn. Its fate appears to rest on prospects for a US-China trade deal, and global growth generally. There have been positive signs on both fronts lately, and Evraz is up more than 8% in the last week as a result.

2020 is shaping up to be a bit bumpy, and Evraz seems the volatile type. Earnings are falling 50% this year, with a drop of 11% expected in 2020. This stock is massively risky, just a glance at the valuation tells you that. It’s also tempting, if you fancy a whiff of danger in your portfolio.

Aveva Group

Having seen its dizzying valuation, you will not be surprised to hear the Aveva share price has been on a bit of a run. It is up 96% over one year, and 270% over five. I owned this stock, back in the day. I wish I still did, and I’m not the only one kicking myself.

Aveva has posted healthy revenue growth, up 16.5% to £391.9m in the first half, delivering “good growth” across all geographic regions, particularly Asia Pacific.

The £7.52bn group sits on net cash and deposits of £58.6m, and recently jacked up its dividend by 10.7%. Despite this progressive attitude, its yield is at the opposite end of the scale to Evraz, a lowly 1% with cover of 2.2%.

Aveva Group looks set to continue its fabulous momentum, with earnings forecast to rise 18% in the year to 31 March 2020, and 14% the year after that. However, I am unnerved by its valuation, which leaves no room for slips.

I can’t quite bring myself to recommend it for that reason. This time, the valuation has the casting vote.

The post A P/E ratio of 3 and a 12.5% dividend yield! I’d call this FTSE 100 stock a risky buy appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the 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.

An impressive share-price climb

The move is interesting. Ten years ago, the share price stood close to 400p and then advanced around 200% over the following eight years. But then it accelerated, moving more than 170% higher in the past two years alone to give shareholders from 2009 a capital gain in excess of 750% — the majority of which occurred in the last two years of a 10-year holding period.

Indeed, Aveva’s historical share-price action is a good advertisement for buy-and-hold investing. However, the fundamental reasons driving the move are less clear, and I’m cautious about shareholder prospects from here.

The five-year financial record shows revenue accelerating from 2018 onwards, powered by the 2018 combination of Aveva with the Schneider Electric industrial software business. That expansion has perhaps transformed the outlook for Aveva. But profits and cash flow lag and, so far, fail to justify the racy forward-looking earnings multiple of just under 35 that Aveva has for the trading year to March 2020.

In fact, over the past five years normalised earnings have been weak and City analysts following the firm are forecasting earnings will return this year to levels last seen around 2014. Meanwhile, operating cash flow has been patchy and is today back to where it was in 2013. There’s also a clear decline shown in the record for operating margin.

Trading well, but growth underwhelming

Today’s full-year results represent the first complete year of trading with the combined and enlarged company. Aveva has provided handy pro forma figures designed to show how well both parts of the business have been trading as if they were still separate businesses. On that basis, overall revenue increased by almost 12% compared to the year before, and adjusted diluted earnings per share moved 27% higher. The directors increased the final dividend for the year by 7.4%.

However, with the share price close to 3,468p, the dividend yield is running near just 1.3% and the payment is covered around twice by earnings. I think the low yield is another indication Aveva could be over-valued by its share price.

Chief executive Craig Hayman explained in today’s report that the company achieved “a strong performance in its first full year as a combined company.” Integration is going well and Hayman is “confident” in the outlook.

City analysts expect earnings to grow around 15% in the current year, a rate of progress that falls short of the firm’s current valuation, in my view.

I think the business is interesting and the stock is risky. This is one of those occasions where I’d rather invest in a low-cost, diversified index-tracking fund than in this individual share.

The post Why I’d be wary of this FTSE 250 performer and what I’d buy instead appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any share 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.

All things Electro

My first faller is Electrocomponents (LSE: ECM) which is down more than 7%, despite reporting first-half revenue growth of 9.8% and market share gains in all three of its regions. However, investors are a forward-looking bunch, and were worried by warnings of slowing growth as it moved into the second half, even though this was largely expected.

Electrocomponents also reported a 1% rise in gross margins to 44.4%, while revenue growth and cost control increased the adjusted operating profit conversion ratio from 22.7% to to 25.7%, and the adjusted operating profit margin climbed from 9.9% to 11.4%. Adjusted earnings per share (EPS) rose 30.5% to 15.9p on a like-for-like basis. All good stuff.

Brexit bother

The £2.52bn company distributes electronic components through the RS Components and Allied Electronics & Automation brands. It is the largest of its kind in Europe and the Asia Pacific region and reported “encouraging” new contract wins so I was initially surprised to see it punished so hard for what appears to be a reasonable set of results.

Investors are no doubt concerned about the “uncertain” external environment in some of its key markets and expensive contingency plans for Brexit, including a £30m inventory build through the second half, and expanding EU warehouse capacity, where possible, in case of no deal. Or maybe they are concerned about its slightly pricey forecast valuation, which is currently 17.6 times earnings. The forecast yield of 2.5% is good but not thrilling. However, my colleague Roland Head puts forward a compelling buy case here.

Viva Aveva

Today’s other faller is FTSE 250-listed engineering and industrial software specialist Aveva Group (LSE: AVV), down almost 4% after its interim results for the six months ended 30 September, despite another set of apparently positive figures.

The results follow its acquisition of Schneider Electric Software with revenue for the combined group growing 10.9% to £343m, and adjusted profit before tax up 54.3% to £60.5m. Recurring revenue rose 18.7% and it served up an interim dividend of 14p per share, whereas this time last year it paid nil.

Software, hard profits

Management said integration remains on track with new organisational structures in place across the group, integrated product solutions developed and showcased to customers, and cost synergy programmes under way. The full-year outlook remains positive.

CEO Craig Hayman said the £4.16bn group “delivered a good performance” with strong sales execution and integration on track, making progress towards its medium-term targets of increasing recurring revenue and improving the adjusted EBIT margin to 30%.

Ooh, pricey

The valuation here is even higher at 32.3 times earnings, which presumably explains the limp market response to these results as Aveva needs to be going gangbusters to justify that heady valuation. With a yield of just 1.7%, and cover of 1.8, I agree with Peter Stephens that it lacks investor appeal right now.

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harveyj has no position in any of the 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.

On the morning of its latest Capital Markets Day, the provider of engineering and industrial software gave us an update on its current trading. The firm reckons its full-year outlook is still in line with expectations, and it expects “to grow its underlying software business in excess of market growth rates.”

In addition, Aveva aims to get its adjusted EBIT margins up to 30%, and intends to achieve that through a combination of revenue growth, cost savings, and focus on high margin revenue.

Highly valued

Aveva shares have been flying this year, and with a background in software myself I do like to see a solid success story. But my problem is, I just don’t understand the current valuation of the shares. The reverse takeover of Schneider in March made forecasts even less meaningful than they can be at the best of times, but we’ve had plenty of time for analysts to update their stance since then… and I still don’t get it.

Based on the consensus for the year to March 2019, we’re looking at a forward P/E of 35. And that would drop only as far as 30 on 2020 forecasts. There’s clearly a lot of growth expectation built into that valuation, but with very modest EPS predictions, I just don’t see where it’s going to come from.

Turnaround

Elsewhere in the FTSE 250, over at Balfour Beatty (LSE: BBY) I’m seeing a tempting recovery prospect. I know the construction business is tough, and Balfour Beatty was recording big losses just a few years ago, but its turnaround plans do seem to be bearing fruit.

First-half results showed a very healthy rebound in pre-tax profit, and the balance sheet was looking a lot healthier as the firm was able to boast average net cash of £161m in the period.

Balance sheet improvements have continued since, and on Wednesday we heard of the completion of the sale of the firm’s 50% stake in Fife Hospital. It sold for £43m, above the expected valuation, and resulted in an expected profit of £22m.

Dividends

Another sign of the company’s new sustained liquidity came from a boost to its interim dividend. We are only expecting a dividend yield this year of 1.7%, but it would represent a third more cash than in 2017. And a similar expected lift in 2019 would take the yield to 2.3%, well over three times covered by earnings.

After last year’s big EPS recovery and this year’s expected pause, it might take a little while yet for the share price to pick up seriously. But with a 2019 forward P/E of 13 and PEG of 0.6, I see a profitable future for Balfour Beatty investors.

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Alan Oscroft has no position in any of the 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.

Viva Aveva

Revenues rose 8.6% to £704.6m and the share price jumped more than 13%, delighting investors who will have been disappointed by its longer-term performance, with the stock trading just 13.7% higher than five years ago. Aveva completed its reverse takeover of French giant Schneider on 1 March and now it is all systems go.

Chief executive Craig Hayman said: “The integration of the business has begun in earnest to drive top-line synergies.” The planned cost savings should be realised by 2020, while the hook-up is also expected to generate “material revenue synergies over the medium term” and capture the trend towards industry digitalisation.

How much?

My worry is that Aveva now trades at a monster forward valuation of more than 50 times earnings while City analysts are forecasting a 39% drop in earnings per share in the year to 31 March 2019, albeit followed by an 11% rise the year after. Perhaps there is a monster dividend to compensate? Nope. Unless you consider a forecast 1.3% monster-like.

My Foolish colleague Peter Stephens also banged his head against these unappealing numbers, and although today’s results are more than welcome, I remain unconvinced, especially as we don’t yet know what synergies the group can generate. Others clearly feel differently this morning, though.

Brown down

Manchester-based clothing and homeware retailer N Brown Group (LSE: BWNG) is out of vogue, sliding 1.62% after publishing its Q1 trading statement for the 13 weeks to 2 June. Investors are understandably wary with management only able to describe a “satisfactory performance in a challenging period” for fashion retail, while announcing a 0.4% rise in group revenue.

The group also announced it had launched a consultation to consider closing all of its 20 stores, in the latest bad news to hit the high street. However, its stores only account for just 2% of group revenue, with 75% now generated online, rising to 84% for new customers.

Smart work

CEO Angela Spindler was satisfied given strong comparatives and the tough industry backdrop, saying: “We continue at pace our journey to become a global online retailer, uniquely delivering fashion that fits. This will underpin our future growth, both in the UK and internationally.” 

It is a big prize, for a company with a market cap of £553m, whose brands include the relaunched JD Williams, Simply Be and Jacamo. The stock has fallen 30% in the year but the good news is that it now trades at just 8.6 times earnings. Roland Head reckons its decline has gone too far.

N Brown’s numbers are the reverse of Aveva’s, and look more attractive. Its earnings growth prospects do look sluggish but the yield is glorious at a forecast 7.2%, covered 1.6 times. Closing stores is sad but makes sense amid falling high street footfall. It looks an interesting contrarian opportunity to me.

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harveyj has no position in any of the 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.

Analysts are expecting big things from the enlarged group this year and it seems that the firm is on track to meet these expectations looking at the trading update issued this morning.

Strong trading

Trading was “strong” for heritage Aveva, thanks to the improving oil and gas market outlook, which resulted in revenue expanding during the second half of last year.

Overall for the year, revenue increased at a “comfortable” double-digit rate on a currency neutral basis, with growth at 5.9% for the first half. Meanwhile, the update notes the heritage Schneider business also did well, recording low single-digit revenue growth on a currency neutral basis.

For the full-year, analysts are expecting the company to report earnings per share growth of 19.6%, although growth is expected to slow to just 4% year-on-year for 2019.

Looking at these figures, it’s difficult for me to get excited about Aveva and the company’s prospects. Indeed, even though the stock has outperformed the FTSE 100 by 7% over the past month, I’m finding it difficult to see how these gains can continue. The shares currently trade a forward P/E of 28, which looks expensive even when you factor in the earnings growth predicted for the next two years. And the firm is about a fifth more costly than the broader UK IT sector. A dividend yield of 1.8% also leaves a lot to be desired.

With this being the case, I would avoid Aveva. On the other hand, I believe specialist engineering consultancy group Ricardo (LSE: RCDO) could be an excellent buy for your portfolio.

Growing backlog 

Like Aveva, shares in Ricardo have smashed the FTSE 100 over the past few months returning 10% year-to-date, compared to -5% for the UK’s blue-chip index. But unlike Aveva, the stock is much more attractive on a valuation basis. The shares currently trade at a forward P/E of 15.7, and earnings per share are expected to rise by more than 25% over the next two years.

And as my Foolish colleague Ian Pierce recently pointed out, Ricardo’s international diversification across different sectors should help the firm continue to grow no matter what the economic environment. Within its half-year report, the company reported order book growth of 24% year-on-year to £302m against revenue for the half of £183m. Long term contracts guaranteed income for many years and make it more likely that the group will be able to book recurring revenue from customers in the years ahead.

As well as organic expansion in sectors such as rail, defence and energy, the company is also using its strong balance sheet to buy up growth via bolt-on acquisitions. There’s plenty of capacity for further deals with net gearing of only 19.2% and a cash balance of £34m. 

All of these positive factors lead me to conclude that Ricardo is a much better buy than Aveva.

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Rupert Hargreaves owns no share 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.

It turns out that was a canny decision, as Thursday brought another warning — and a further 30% share price slump during morning trading. As I write, the price has recovered a little to 58p, but is still 25% down on the day. And down 90% since a peak of more than 600p in June 2015.

Trading conditions “have remained difficult, characterised by continued weak consumer confidence,” which really shouldn’t come as any surprise. As a result, Carpetright’s UK like-for-like sales are still falling (though at a softening pace), and remain below the firm’s expectations.

The bottom line is that we should now expect an underlying pre-tax loss for the year to April.

Bankers

That has inevitable liquidity and balance sheet implications, and the company is talking to its bankers to ensure it doesn’t break the terms of its borrowing facilities. At the same time, there’s an effort being made to work out how to strengthen the balance sheet, though at this stage there are no further details.

The City had already been predicting a 75% fall in EPS this year and a modest pre-tax profit, though forecasts for the next two years would see earnings recovering by approximately 50% each year to bring the P/E down to seven by 2020.

That’s meaningless now, and the optimism seems misplaced at the moment. 

It’s possible that Carpetright might be at the point of maximum pessimism right now and that buying would be a smart move. But with discretionary spending tight and the retail sector hurting, and with other safer stocks on offer, I see no need to take the risk.

Biggest fall

The biggest nominal fall on Thursday saw industrial software specialist Aveva Group (LSE: AVV) shares apparently losing more than a third of their value.

It’s due to its readmission to the market after the completion of a reverse takeover with the software arm of Schneider Electric of France. The readmission includes Aveva’s original 64m shares, plus 97.2m new shares issued to Schneider as part of the deal. But what are we to make of the new beast?

Aveva’s shares had stormed ahead over the past two years, gaining 130% by the end of January 2018, presumably in expectations of the firm’s earlier growth pattern resuming after a break of a couple of years. And that might indeed be on the cards, after a brief update on 15 February (following Schneider’s 2017 results) told us that the two companies’ joint assets “experienced continued growth in [their] Licencing and Maintenance revenue streams, partly offset by a slight decline in Services revenue.“

More sensible valuation?

One problem is that forecasts prior to Thursday put Aveva shares on a high fundamental valuation, with a forward P/E of nearly 40. That might be fine for a company with very strong earnings growth expectations, but single-digit EPS forecasts would have dropped that only as far as 34 by 2020.

The new Aveva makes those forecasts obsolete and we’ll need to wait for updated forecasts for the merged operation. We might have a more sensible valuation when it all works out, but I’d probably want to wait for a full year of results following the merger.

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Alan Oscroft has no position in any of the 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.

Viva Aveva

It is relatively becalmed today, rising only slightly on publication of the briefest of trading updates to mark today’s announcement of the 2017 financial results at French-owned Schneider Electric. It bought a majority stake in Aveva last year and its industrial software portfolio shares corresponding assets. This reported continued growth in its licensing and maintenance revenue streams, partly offset by a slight decline in services revenue.

Expensive

Do check out this article by my Foolish colleague Peter Stephens, who warned that this stock could lose you a fortune because it risks being overvalued, which is always a danger with growth monsters like this one. However, Aveva at the moment looks to have earned its success after posting strong performance in the first nine months of its financial year, across all reporting regions with a particularly good performance in Asia Pacific.

The share price surge has pumped up its valuation to a hefty forecast 36.8 times earnings, while its PEG ratio stands at an equally stretched 3.3. Those two numbers will be enough to put many potential investors off but there is growth in the pipeline, according to City analysts, who forecast an increase in earnings per share (EPS) of a healthy 11% in the year to 31 March 2018, followed by 5% and then 9%. So the share price could keep rising, but it shouldn’t be too hard to find a better home for your £1,000 today.

Nice IDEA

Could that home be high-growth technology play Ideagen (LSE: IDEA)? The company supplies information management software to highly regulated industries and its stock spiked 20% at the end of January following publication of its unaudited interim results for the six months to 31 October.

This buoyant set of figures showed revenue increasing 43% to £17.2m, with underlying organic revenue growth of 13%. New bookings increased 78% to £10.8m while recurring revenues increased 60% to £10.8m. My colleague Alan Oscroft flagged up its success at the time, and said he admired a business that benefits from a captive clientele and high barriers to entry.

The gen on Ideagen

Ideagen has now posted five consecutive years of double-digit EPS growth with another 27% forecast in the year to 30 April 2018, followed by 10% after that. Once again, its pricey valuation reflects the recent share price surge, with the stock trading at 34.2 times earnings, although this is expected to calm down by 2019, to 24.6 times.

Before you part with your £1,000, make sure you understand the risks as well as the potential rewards. This AIM-listed software developer has a market cap of just £227m and needs to constantly build revenue sources to justify high investor expectations, so any slippage could prove costly. In January it won a new audit software contract with Commerzbank and will need more of that to keep rattling along. This probably should not be the first stock to pop in a newbie portfolio, but it could add some zip to an existing one.

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Harvey Jones has no position in any of the 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.

For the year, the company’s revenue grew by 35% to £1.1bn and group reported underlying EBITDA rose by 24% to £160m. Adjusted earnings per share came in at 20p, and net debt has been reduced from 1.4 times EBITDA to 1.2 times.

Unfortunately, higher costs hit the group’s bottom line with pre-tax profit falling to £37.2m, from £47.9m in the year before. This was due to one-off costs it incurred in relation to moves management made to reshape the group’s film business and the renegotiation of a distribution arrangement. These costs should not be repeated and should help improve margins going forward.

The best performing division for the year was the group’s Television and Family arm, which grew by 85% and 33% respectively. Film revenue increased by 7%. The company also revealed today that its leading Peppa Pig television programme will return to screens from spring 2019 with a further 117 episodes set to be created.

Further growth ahead for the company?

Entertainment One has gone from strength to strength over the past five years and today’s results show that the firm still has plenty of energy left for growth.

After this year’s earning blip, analysts expect the company’s earnings per share to grow by 18% for the year ending 31 March 2018 and a further 10% for the following financial year. Based on these forecasts, the company is trading at a forward P/E multiple of 10.6, which seems exceptionally cheap considering Entertainment One’s growth over the past five years (pre-tax profit has exploded from £5.5m to £125m).

This low valuation almost certainly undervalues the business and gives Foolish investors a great opportunity to buy a high quality business at a low price.

Steady momentum

Aveva Group (LSE: AVV) also reported its figures today and just like Entertainment One, the earnings report was upbeat. The company reported a massive 60% increase in pre-tax profit as revenue rose from £201.5m to £216m and costs declined. Profit from operations rose to £44.8m, versus £29.4m in the year-ago period. Net cash increase by 21% to £131m from £108m, which gave management confidence to hike the total dividend for the year by 11% to 40p.

Shares in Aveva are falling after this upbeat release because the market has extremely high expectations for the company. Indeed, the shares are currently trading at a forward P/E of 27.9, despite the fact analysts only expects earnings per share to grow by 9% for the year ending 31 March 2018. The dividend yield of 2.1% hardly compensates investors.

Still, over the past year shares in the company have shown resilience, rising 23.2% and outperforming the FTSE 100. If this outperformance continues, investors should be well rewarded. Aveva has grown steadily over the past few years and the group’s high valuation should remain in place on the back of ongoing expansion.

The post 2 cheap momentum growth stocks that could fund your retirement appeared first on The Twelfth Magpie.

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Rupert Hargreaves 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.