2 growth stocks under £1

Peter Stephens — Wed, 18 Oct 2017 11:01:55 +0000

With the FTSE 100 rising to record highs, finding cheap shares is proving more difficult for many investors. However, there are a number of stocks which continue to offer dirt-cheap valuations, as well as impressive growth outlooks. Clearly, just because a company’s shares are priced for less than £1 does not necessarily mean they are cheap. But these two stocks priced below £1 appear to have a potent mix of growth and value potential.

Further progress

Reporting on Wednesday was gold exploration and development company Hummingbird Resources (LSE: HUM). It is on track and on budget to deliver first gold production by the end of 2017. This follows a positive quarter, with the company making progress with its construction operations. It has also entered into an agreement with African Gold Group to develop its gold project. This could ultimately increase both the annual production output and the life of the mine at a similar operational cost.

While Hummingbird Resources is currently a lossmaking business, production is expected to propel it into profitability. This could boost investor sentiment in the short run – especially since the market does not seem to have priced in its future financial performance. The company trades on a forward price-to-earnings (P/E) ratio of just 9, which suggests that it could offer upside potential.

With the price of gold rising already in 2017, its outlook appears to be positive. Concerns surrounding North Korea could propel its price even higher. Similarly, concerns about the global economic growth outlook may lead more investors to purchase gold. This would clearly be good for Hummingbird Resources and may help it to generate higher profitability as well as a rising share price over the long run.

Turnaround potential

Also offering a share price below £1 at the present time is Gem Diamonds (LSE: GEMD). It trades at 78p versus 38p for Hummingbird Resources and also appears to have a bright long-term future.

Of course, Gem Diamonds is in the midst of a somewhat challenging period. Its bottom line is due to come under pressure in the current year, with a forecast fall in earnings of 83% expected by the market. It has struggled to cope with falling small gem prices and in response has put its new mine in Botswana up for sale.

While this could mean that the stock is relatively volatile in the short run, it is due to post a successful turnaround in 2018. Its bottom line is expected to rise by 459%, which puts it on a forward P/E of just 8.7. This suggests that it offers a wide margin of safety and could be worth buying for the long run.

Certainly, Gem Diamonds has a somewhat unclear future. Diamond prices may fall and this could negatively impact its financial performance. However, with a low valuation and upbeat forecasts, it appears to have an attractive risk/reward ratio.

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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.

2 top turnaround stocks that could make you a millionaire

Alan Oscroft — Wed, 27 Sep 2017 14:25:59 +0000

Would you invest in a gold miner that’s not making any profit? That’s the situation with Hummingbird Resources (LSE: HUM), but it’s nothing to worry about — it’s because the company hasn’t actually produced any of the shiny stuff just yet, but it’s on the brink of it.

Hummingbird has been developing its Yanfolila gold project in Mali, and it’s on schedule and within budget with first gold pour expected by the end of 2017. And in Wednesday’s first-half results announcement, there were plenty of indications that the firm should make it through to profitability just fine.

Following the acquisition of 5% of the Yanfolila project from a minor firm that held an interest, Hummingbird now owns 80% of it — and the Mali government has upped its stake to 20% for an investment of $11m. In addition, there was approximately $60m in cash on the books at 1 September, though there’s a fair bit of debt too.

Turnaround

We’ve had years of losses building up to this expected first year of gold production, and there’s a further loss on the cards for the full year this year — a modest 1.36p loss per share is forecast.

But that should swing around in 2018, with analysts predicting EPS of around 3.2p per share . That would put the 32.25p shares on a P/E multiple of only around 7.8 — barely more than half the FTSE 100‘s long-term average.

While we’re in an economically uncertain phase I don’t see much risk of a gold price fall. But politics could be a problem — the military coups in Mali in 2012 suggest anything could happen in the coming years.

But gold is gold, and Hummingbird could be a good way to get in on it.

Road to recovery?

K3 Business Technology Group (LSE: KBT) is a stock that I think could be set for a turnaround of a very different nature. The company provides end-to-end business software systems for the retail, manufacturing and distribution sectors, and its shares were climbing nicely — they reached more than 350p in late 2016.

But a couple of profit warnings — the most recent on 16 May this year — sent the price nosediving, and we’re looking at just 159p as I write. The company failed to secure some major deals it was expecting, and May’s announcement told us that results would be “significantly below current market expectations.”

We had those results Wednesday. They revealed an adjusted pre-tax loss for the 12 months to 30 June of £2.63m (from an adjusted profit of £8.8m a year previously) and an adjusted loss per share of 7.4p (against previous EPS of 23.5p). Net debt stood at £6m.

Recovery prospects

But I’m seeing encouraging hope for recovery, with the company already changing its strategy “for a return to profitability and sustainable growth.” That includes focusing on the SME market and its own products, and looking for recurring income. There’s an ongoing review of the firm’s resources too, and reorganisation has produced annualised savings of around £3.7m already.

The firm’s year-end is changing to November because of its strong seasonal trading, and analysts are actually expecting to see EPS of 18p, which would give us a P/E of around nine — but a big fall pencilled in for 2018 would drop EPS to only around 8p and drive the P/E up to 20.

But K3’s rapid response makes me think that’s too pessimistic.

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