The case for investing becomes even more compelling when we remember that earnings rose by 8.5% to 66.5p per share last year. A further increase of 2.4% is expected in the 2018/19 financial year, suggesting that the mighty dividend will remain safe.

It’s hard not to be tempted. But it is worth considering the reasons why investors have been selling the stock this year, pushing Barratt’s share price down by 25% to about 485p.

Risk vs opportunity

Fears about the end of the Help to Buy scheme have been pushed down the road. The Chancellor has now extended this scheme to 2023, with tapering from 2021. But builders are still facing rising costs and slowing sales, at least in the south east.

Another problem is that affordability remains poor in many areas of the UK, with house prices at record highs. As a result, a number of the firm’s rivals have said they’re focusing on building cheaper homes and build-to-rent properties.

These problems don’t seem to have affected Barratt so far. The group’s operating margin rose by 0.5% last year, during which the company built a record 17,579 homes.

However, there’s always the risk that Brexit will trigger a recession. Sales certainly seem to be slowing. The group’s sales rate fell to 0.72 reservations per outlet per week during the first 15 months of the year, down from 0.74 during the same period last year. Although this isn’t a big fall, my calculations suggest that this is equivalent to a 2% drop in private sales.

Buy, sell or hold?

In my view, Barratt Development’s share price already reflects some of the risks facing the company. The stock now trades at just 1.3 times its tangible net asset value, compared to a multiple of 1.8 times in November 2017.

If market conditions remain broadly stable, then I think Barratt stock looks quite reasonably priced at the moment. The shares could be worth considering as an income buy.

Strong residential growth

Another way to invest in the housing market is to buy shares in companies which supply housebuilders’ raw materials. One of my favourite stocks in this sector is plastic piping specialist Polypipe Group (LSE: PLP). This FTSE 250 company produces pipes for drainage, sewers, rainwater harvesting and ventilation systems.

In a trading update today, Polypipe said that like-for-like sales of residential products rose by 11.5% to £204.3m during the 10 months to 31 October.

Residential sales were said to be strong in the new-build housing market, but weaker in the ‘RMI’ market — repair, maintenance and improvement. This may suggest homeowners are cutting back on spending on their homes.

Like-for-like sales of commercial building and infrastructure products rose by 8.6% to £161.6m. The company says this growth was driven by new products such as a “tall building soil and waste solution” and a “large diameter sewer and drainage range”.

Management guidance for the full year remains unchanged. Although I would expect sales to fall during a recession, I rate this business highly and would quite like to own the shares. Trading on 13 times forecast earnings with a 3.2% dividend yield, I’d rate Polypipe as a stock to buy on the dips.

The post Thinking of buying the Barratt share price? Read this first appeared first on The Twelfth Magpie.

More reading

• This beaten-down FTSE 100 dividend share just jumped 11% in a week but still yields almost 5%
• £1,000 buys 380 shares in this 5.4% yielding passive income stock
• Down 33% with a 5.6% dividend yield, is this FTSE 100 stock a once-in-a-decade buy?
• Why are these FTSE 100 growth and dividend stocks so cheap?
• Down 65% but yielding 6.7% – is this beaten-down UK stock now a generational bargain?

Roland Head 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.

Time to sell? 

Centrica last cut its dividend in 2015 (fiscal 2014) when a combination of factors forced the group’s hand. Falling oil prices, rising costs, increased political scrutiny, and a high level of debt meant management had little choice but to reign in distributions to investors. The payout dropped from 17p in 2013, to 13.4p in 2014, before dropping again to 12p for 2015.

At the time, the company believed reducing the distribution to 12p would be enough to lower debt and restore investor confidence. After a few years at this rate, the market believed growth would return. After all, for fiscal 2015 analysts had pencilled in earnings per share (EPS) of at least 20p (23p was reported), leaving plenty of room for dividend growth in the years ahead.

Unfortunately since 2013, the group’s normalised earnings per share have shrunk by nearly 50%. The payout is now only just covered by EPS (based on fiscal 2017 numbers). 

Going forward, City analysts are not expecting a sudden recovery. For 2018, EPS of 12.8 are forecast, but these numbers don’t take into account any possible customer attrition for when the government’s price cap on standard variable tariffs (SVT) arrives at the end of 2018.

Considering all of the above, I reckon the company is today in a similar position to the one it was in towards the end of 2014. Centrica is facing pressure from all sides and dividend cut may be the only choice management has to restore confidence. 

With this being a case, I’m avoiding Centrica’s 8.1% dividend yield.

A better growth buy

Centrica’s future is uncertain, but one company I’m more positive on the outlook for is Polypipe (LSE: PLP). Manufacturer of plastic piping systems, Polypipe’s business is so boring it is unlikely to ever attract the same (mostly negative) publicity as Centrica. I reckon this makes the shares much more attractive because management can focus on growth, rather than PR.

And over the past five years, Polypipe has produced some impressive growth. Since 2012, earnings per share have grown at a compound annual rate of 19% as net profit has more than doubled. Acquisitions have formed a significant part of the growth strategy. For example, today Polypipe announced the acquisition of Permavoid Limited, a specialist designer and supplier of surface water management solutions. 

Analysts believe organic growth, coupled with a steady stream of bolt-on acquisitions, will help Polypipe grow EPS around 10% this year, and 6% in 2019. Although I wouldn’t rule out upward revisions to these numbers as they currently exclude any future deals.

For a company with a growth record like Polypipe, I would expect the shares to trade at a premium valuation. However, they’re changing hands at just 13 times forward earnings which, to my mind, undervalues the business. A dividend yield of 3.2% is also on offer, covered 2.4 times by EPS. 

So, if you’re looking for a replacement for Centrica in your portfolio, Polypipe could be a good candidate.

The post I’d dump FTSE 100 income champ Centrica to buy this growth leader appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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.

Elsewhere, FTSE 250 plastic piping specialist Polypipe (LSE: PLP) reported half-year results this morning and said its performance was “driven by continued strong growth in new housebuilding.” Its shares are up 5.6% at 375p, as I’m writing, and I’ll come back to this stock after first looking at Persimmon’s prospects.

History

I turned bearish on housebuilders last autumn, rating Persimmon a ‘sell’ in October at 2,800p and again in January at 2,710p. With the shares now down to 2,470p, are today’s cheap earnings rating and whopping yield simply too tempting to ignore?

Housebuilders have enjoyed almost a decade of booming profits. The problem for investors in this historically boom-and-bust sector is that the market begins to price-in the next bust even while fundamentals appear robust. Back in February 2008, Persimmon posted a record profit of £414m and was confident that there remained “an underlying demand and desire for new homes.” However, the shares had already lost 50% of their value by then and the P/E had fallen to 5.5. A year later, the company posted a £625m loss and ditched the dividend. The peak-to-trough decline in the share price over two years was more than 85%.

Things that can’t go on forever, don’t

The market correctly predicted the last housebuilding bust and now appears to be starting to price-in the risk of the next. I see potential for demand and pricing for new homes to plummet. Interest rates are now entering a rising cycle (not generally good for housbuilders), there’s political risk (e.g. an early withdrawal of the government’s Help to Buy scheme) and Brexit presents a range of potential headwinds (availability of skilled labour and rising labour and materials costs) and even the risk of a full-blown economic recession.

Now, there may not be a perfect storm, but the scale of the likely collapse of housebuilders’ share prices should there be, leads me to take a cautious view. I believe selling Persimmon and banking profits at this stage is a prudent course.

Exposed pipework

Polypipe manufactures plastic piping systems for heating, plumbing, drainage and ventilation. It has some geographical diversification (little more than 10% of first-half revenue came from outside the UK) and it supplies the commercial and infrastructure sectors as well as residential. Well over half of H1 revenue and two-thirds of operating profit came from residential.

Residential revenue was 5.9% higher than in the same period last year, with new housebuild more than offsetting weakness in the repair, maintenance and improvement markets. Revenue in commercial and infrastructure was down 6.6%. The company expects the outlook to remain mixed in the second half but to deliver full-year results in line with expectations.

At the current share price, the forward P/E is 13.2, based on forecast 5% earnings growth, and the prospective dividend yield is 3.1%. For a company with significant indirect exposure to the risks faced by Persimmon, I don’t see the earnings rating as offering anything like a big enough margin of safety. As such, I also rate this stock a ‘sell’.

The post Should you buy this FTSE 100 giant for its mega 9.5% dividend yield? appeared first on The Twelfth Magpie.

More reading

• Down 63% and yielding 6.3%! Is this FTSE 100 share a brilliant bargain?
• This 5.5%-yielding income stock’s at a 13-year low and cheap to-boot! Time to consider buying?
• Down 65% but yielding 6%! Is this FTSE 100 dividend stock an unmissable bargain?
• A 6.7% forecast yield and 53% below ‘fair value’! 1 stunning FTSE income stock for investors to consider today?
• How much do you need in an ISA to target a £2,066 monthly passive income in 2066

G A Chester 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.

According to the firm’s figures for 2017, pre-tax profit for the year increased by 17% to £35m and underlying profit rose 10% to £68m, thanks to a 14% increase in revenues to £523m, helped by contributions from acquired companies Bilco and Giess. Favourable exchange rates also contributed to rising profitability.

And following 2017’s strong performance, management is not slowing up. Today, Tyman announced one of its most significant acquisitions yet, a $101m deal to buy US window and door hardware firm Ashland Hardware. To help fund the deal, it’s issuing 17.8m shares.

Expanding overseas 

The buyout of Ashland should accelerate Tyman’s growth in the US considerably. Its US-based AmesburyTruth division, which Ashland will join, grew sales at 15% to £332.7m last year, and Ashland will add another $67m to this total. For 2017, the US-based business recorded revenues of $67m and adjusted earnings before interest, tax, depreciation, and amortisation of $11m. This deal should help accelerate growth in 2018, and it shows just how committed management is to growing the business over the long term. 

Tyman has a history of expanding revenues through acquisitions. This approach has helped the company grow earnings per share at a rate of 12% per annum over the past five years. Management is expecting “a further year of profitable growth in 2018,” and City analysts have pencilled in earnings per share growth of 8%, although this doesn’t include gains from the acquisition announced today.

With this being the case, I believe the company’s current valuation of 10.8 times forward earnings is way too cheap. If management can continue to grow earnings at a double-digit rate every year, then its multiple looks to undervalue Tyman’s future growth potential significantly. As well as the bargain basement valuation, the shares also support a dividend yield of 4%.

Too cheap to pass up? 

Tyman isn’t the only cheap growth star I’ve got my eye on today.

Plastic piping systems manufacturer Polypipe (LSE: PLP) has seen its earnings grow at a compound annual rate of 34% per annum over the past five years — a growth rate more suited to a tech company rather than dull pipe producing business. 

City analysts are expecting the firm to report earnings growth of 22% for 2017, followed by an increase of 8% in 2018. However, this doesn’t include the impact of any potential acquisitions that may be inked over the next nine months.

Despite the historical earnings growth Polypipe has been able to achieve, the shares look relatively cheap, trading at a forward earnings multiple of only 13.6 at the time of writing. For most construction businesses, this valuation might be considered appropriate. But considering Polypipe’s record of growing earnings, it seems too cheap to pass up. What’s more, as CEO Martin Payne commented at the end of November, “the group continues to deliver strong organic growth ahead of the overall UK construction market, demonstrating the resilience of its balanced exposure to the different sectors within that market.“

The post Two secret, cheap growth stocks to watch in 2018 and beyond appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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.

After a disastrous decision to try and turn its part-time employees into full-time workers, Provident Financial (LSE: PFG). Fell into the turnaround bucket. By changing its employment structure, management was trying to cut costs, but this has failed spectacularly.

Following the changes, employees fled the doorstep lender and losses started to pile up. Only 57% of the firm’s outstanding debts were collected in August (a figure that’s since recovered to 65%) and overall this year, management is projecting losses from debt write-offs of £120m. 

Time to catch the knife?

Even though some analysts are positive about the outlook for Provident, including my Foolish colleague Peter Stephens, I’m not so sure. You see, the company’s problems have resulted in its best agents, which have the best customers, moving to rivals, taking business with them, and it’s going to be hard to win back these customers. 

Even though City analysts are predicting a recovery in the company’s earnings next year (up 64% to 91p), they’re still projected to come in at around half the level reported for 2016 (178p). Analysts are also predicting a dividend of 31p per share, down around 77% since 2016. 

A better buy 

As Provident struggles, I prefer the look of Polypipe (LSE: PLP). Unlike the doorstep lender, this one is still growing strongly in a defensive industry. Indeed, today the company announced that it is on track to meet full-year guidance after a “strong” performance in the first 10 months of the year. For period ended October 31, revenue expanded 8.1% to £400.6m. On a like-for-like basis, revenue grew 7.1%. Revenue growth was driven by robust UK Residential Systems growth of 9.9% to £193m. 

In mainland Europe, revenue for the period expanded 19.9% or 11.2% on a like-for-like basis. CEO Martin Payne said: “The group continues to deliver strong organic growth ahead of the overall UK construction market, demonstrating the resilience of its balanced exposure to the different sectors within that market, and the continued success of its strategic growth pillars of legacy material substitution and legislative tailwinds in water management and carbon efficiency.”

For the full-year, City analysts expect the company to produce earnings per share growth of 7%, followed by an increase of 8% for 2018. If the company hits these targets, it will have grown earnings per share three-fold in six years. And growth should accelerate in the years ahead as the company pays down its debt, which is currently equal to 2 times EBITDA. Debt is projected to reduce significantly during the second half due to the timing of cash flows. 

As well as paying down debt, management is returning cash to shareholders. The stock currently yields 2.8% and trades at a forward P/E of 14.7. 

So overall, if you’re looking for an income and growth buy, with the potential for further growth as its balance sheet improves, I believe Polypipe could be a great buy. 

The post Why I’d buy this hot growth stock over Provident Financial plc appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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.

Fundamentals

Provident Financial (LSE: PFG) isn’t a household name, but you may be familiar with some of its advertised brand names, such as Vanquis, Moneybarn and Satsuma Loans.

Key to the company’s success is its growing distribution scale and leading digital innovation. Led by robust demand for short-term loans, Provident is seeing solid growth in customer numbers and in its loan book. Despite the uncertainty caused by the vote to leave the European Union, last year, customer numbers and loan receivables at its main business, Vanquis Bank, expanded 8.7% and 13.8%, respectively.

But critics say that Provident’s growth is unsustainable because the company is particularly exposed to UK consumers at a time when real household disposable incomes come under pressure from rising inflation. Growth is slowing already but I don’t expect a hard landing, rather a moderation in its pace of growth after years of breakneck expansion.

As so often happens, the risks may have been overstated. Loan losses have so far defied earlier expectations, with the rate of impairments continuing to fall from already low levels. And unless interest rates rise sharply, which seems unlikely, loan losses are not expected to deteriorate too significantly over the next few years.

Moreover, as the big banks retreat from sub-prime lending, Provident benefits from favourable long-term fundamentals. The company is well placed to grow its market share. It has in place specialist systems to evaluate risks and select only those customers with a low likelihood of default, based both on individual characteristics and the historical data that it collects from its customers. It is also making great strides with developing the brand awareness of its online-only Satsuma Loans business, which would further expand its lending capability and boost its digital presence.

Provident shares don’t seem particularly cheap with the company trading at 16.9 times its expected earnings in 2017. But, if we factor in its expected double-digit dividend growth, its shares become much more tempting. Shares in the company yield 4% right now, but City analysts expect its prospective dividend yield to rise to 4.6% by the end of this year, and 5.1% by the end of 2018.

Market leader

Also offering scope for long-term growth is plastic piping and ventilation systems company Polypipe (LSE: PLP).

Since its IPO back in 2014, operating profits have increased by an impressive 56%. And key to its success has been its position as a market leader, which allows it to enjoy imposing underlying operating margins of more than 15%. This, in turn, enables it to generate enough profits to pay for big capital investments to enable higher volume growth and fund product innovation to expand its product and service portfolio.

Due to steady tailwinds from the new-build residential market and infrastructure projects, City analysts think Polypipe still has plenty of growth to come. On average, they expect underlying earnings to rise by 20% this year, with a further gain of 8% in 2018. And on these estimates, its shares seem fairly valued as they trade at 15.8 times forecast earnings this year (falling to 14.7 times on expected 2018 earnings), against the sector average of 16.8 times forward earnings.

The post 2 growth stocks for the long term appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Jack Tang 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.

Rising inflation means that dividend growth could matter more in future years. After all, a high yield is of limited use if its return on a real-terms basis is reduced each year by inflation. As such, shares in companies with fast-growing dividends could become increasingly popular. This could push their share prices higher. That’s why now could be the right time to buy these two stocks.

Improving performance

Reporting on Wednesday was plastic piping and ventilation systems manufacturer Polypipe (LSE: PLP). Its trading update showed it is on track to meet expectations for the full year, with revenue increasing by 6% versus the comparable period. This included growth of 4.8% in the UK, where continued strong organic growth is acting as a positive catalyst on the company’s financial performance.

Furthermore, Polypipe’s performance in Mainland Europe was also strong. It reported a rise in sales of 14%, with this falling to 4.2% when the effect of weaker sterling is excluded. It has seen an improvement in the operating environment within Europe, which suggests more growth could be ahead for the business.

While Polypipe also announced a change to its CEO today, with the CFO set to take over, the company’s strategy looks set to deliver rising earnings and dividends over the medium term. For example, in the current year the company is expected to record a rise in its bottom line of 7%, followed by further growth of 9% next year. This puts its shares on a price-to-earnings growth (PEG) ratio of only 1.5, which indicates upside potential may be high.

While a dividend yield of 2.4% may be relatively modest, dividend cover of 2.5 suggests a higher dividend could be ahead for the company. In fact, dividends are due to rise by 7.5% per annum during the next two years, which means Polypipe could become a strong income play.

Growth potential

Also offering scope for a higher dividend over the medium term is cellular material technology company Zotefoams (LSE: ZTF). As with Polypipe, it currently has a relatively low dividend yield of 1.9%. However, since dividends are covered 2.3 times by profit, there is clear growth potential when it comes to shareholder payouts. In 2017 and in 2018, for example, the company’s dividends are expected to rise by 4% and 5% respectively. This is likely to be well ahead of inflation.

As well as the chance to become an increasingly attractive income share, Zotefoams also offers capital growth potential. The company’s business model and strategy seem to be sound, since it has been able to grow earnings in each of the last three years. Looking ahead to the next two years, it is expected to record a rise in its bottom line of 15% and 17% respectively. This puts its shares on a PEG ratio of just 0.9, which indicates there could be significant upside potential on offer over the long run.

The post These 2 dividend growth stocks could be retirement cash cows appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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.

Plumbing the UK

In the UK, no self-respecting plumber is likely to be unaware of the firm’s piping systems, and recent double-digit percentage advances in full-year revenues and profits suggest the company continues to win market share in Britain. Around 98% of its operating profit came from the UK, although a sizeable operation in Europe seems to struggle to deliver the levels of profit Polypipe earns at home.

City analysts following the firm expect earnings to advance a further 8% during 2017 and 9% in 2018. Meanwhile, at today’s 398p share price, Polypipe trades on a forward price-to-earnings (P/E) ratio of 13.5 for 2018 and the forward dividend yield runs around 2.9%. Those forward earnings should cover the payout 2.5 times.

The valuation seems reasonable and the operational and share-price momentum is undeniable. My only reservation is that the plumbing market can be cyclical. Weakness in the wider economy could translate to weakness in Polypipe’s earnings and a reversal of that tempting upward share price trend. However, there’s no sign of that happening just now, so Polypipe looks interesting as long as shareholders remain vigilant for any downturn in forward prospects.

Preparing for growth

Restructuring at McBride (LSE: MCB) is going well, as evidenced by a 145% advance in the share price since January 2015. The manufacturer and supplier of co-manufactured and private label products for the household and personal care markets operates all over Europe and in Asia, and although revenues contracted a little last year, the firm is squeezing more profit from operations.

City analysts following the firm expect earnings to elevate 21% for the year to June 2017 and 15% the year after that, which could be enough to keep the shares on their upward trajectory.

The directors report that other firms are showing interest in buying McBride’s aerosols business, which could crystallise yet more value for its shareholders if a deal goes through, and free the firm to narrow the focus of its operations. A focused strategy often drives yet more growth, so I think McBride has potential to go much further from here.

A modest valuation?

Today’s share price of around 191p throws up a forward P/E of 12.4 for the year to June 2018, and the forward dividend yield runs at 2.7%. Those forward earnings look set to cover the payout almost three times, suggesting the directors see opportunities to invest more of the firm’s incoming cash flow into growth initiatives, otherwise they would likely pay more cash out to shareholders with the dividend. I don’t think Mc Brides valuation looks too demanding given the firm’s growth prospects.

McBride strikes me as a company with renewed entrepreneurial drive. The restructuring program aims to prepare the firm for the pursuit of growth and, so far, things are going well.  I think the future looks interesting for the company and its shareholders.

The post 2 high-momentum growth stocks you can’t ignore appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Kevin Godbold 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.

Reported pre-tax profit for the period jumped 31% to £54.4m from £41.5m in 2015. Excluding acquisitions on a like-for -like basis, UK revenue grew 11% and overall revenue rose 9.1. Export revenue expanded 29% year-on-year leading management to conclude that so far, there’s been no discernible impact from the EU referendum on the group’s operations.

Off the back of these figures, management is now so confident in Polypipe’s outlook that it has decided to hike the plastic piping manufacturer’s dividend by almost 30%.

No surprise 

2016’s impressive figures should come as no surprise to Polypipe’s investors as the firm has a record of outperforming. Over the past four years, the group’s pre-tax profit has more than doubled rising from £24.6m to £54.4m and earnings per share have increased by 150% from 10p to 25p. Over the same period, management has increased the firm’s dividend payout from zero to 10.1p per share, for a dividend yield of 3% at current prices.

Unfortunately, City analysts expect the company’s growth to slow down. Earnings per share growth of only 6% is pencilled-in for 2017, but I believe the company could end up blowing this forecast out of the water based on historical growth figures. Shares in Polypipe currently trade at a forward P/E of 13.4, which seems cheap considering the company’s historical growth rate and likelihood that the firm will continue to outperform.

Growth stumble 

Polypipe is a boring but impressive business and so is rubber components producer Avon Rubber (LSE: AVON). Between fiscal year-end 30 September 2012 and 30 September 2016, Avon’s earnings per share nearly tripled rising from 27p to 74p while revenue increased 40%. Over the same period management hiked the firm’s dividend payout per share from 3.6p to 9.5p and the shares currently support a dividend yield of 1.3%.

After Avon’s explosive growth since 2012, City analysts expect the firm to take a breather this year with earnings projected to fall by 13% for the fiscal year ending 30 September. Nonetheless, after a short rest growth is expected to take off again during 2018 with and earnings per share rise of 8% pencilled-in for the following fiscal year.

Like Polypipe, Avon is also trading at a mid-teens earnings multiple, which might look expensive at first glance but is appropriate considering the firm’s historical growth rate and considering what the company can achieve in future. Shares in it currently trade at a forward P/E of 14.7.

The post Why you should consider these 2 boring growth stocks appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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.

Now could be a good time to invest in the business, in my view. And there are two other mid-caps I’m also keen on right now.

Performance power

After posting 1% revenue growth in Q1 and 3% in Q2, Electrocomponents said growth accelerated to 6% in the latest period (which actually covers the four months to January 31), with all its regional hubs seeing positive trends. The company also confirmed it’s on track to meet its cost-savings guidance of £18m for the year — this having been upped at the half-year stage from previous guidance of £15m.

Electrocomponents is a well-established global leader and initiatives to improve the customer experience are driving sales higher at a good clip. Combine this with a foreign exchange tailwind from weakened sterling and the cost-cutting programme, and you’ve got a company set to deliver impressive earnings growth.

The City consensus for Electrocomponents’ current fiscal year is for earnings-per-share (EPS) growth of 55%. This puts the company on a pretty high price-to-earnings (P/E) ratio of 25.5 at a share price of 500p. However, a price-to-earnings growth (PEG) ratio of 0.5 indicates the P/E is great value for the earnings growth on offer, which is why I believe now could be a good time to invest in this £2.2bn mid-cap.

Market dominance

Auto Trader (LSE: AUTO) may not be a global leader like Electrocomponents, but it’s the UK and Ireland’s pre-eminent digital automotive marketplace. Over 80% of UK vehicle retailers advertise on autotrader.co.uk.

The company reported an 11% increase in revenue and 28% EPS growth for its half-year ended 30 September. It said: “Despite the current wider economic uncertainty, the board is confident of delivering its growth expectations for the second half of the year”.

Auto Trader sits just outside the FTSE 100, with a market cap of £4bn at a share price of 410p. Again, the P/E is on the high side, matching Electrocomponents’ 25.5, if you go with the more bullish analysts, as I’m inclined to do in this instance. The PEG is at the fair value level of one, but I believe the shares are worth buying at this rating on the basis of the degree of the company’s dominance in its market.

Lower-profile performer

Polypipe (LSE: PLP) is the UK’s largest manufacturer of plastic piping systems for heating, plumbing, drainage and ventilation. Most of the company’s revenue is generated in the UK but over 20% comes from abroad.

Polypipe posted a 31% increase in revenue and 48% EPS growth for its half year ended 30 June, helped by a significant acquisition in the second half of 2015. While mindful of the wider economic uncertainty, the company said its production processes enable it to flex quickly to changes in demand and that the board is confident the group will “continue to develop and outperform, whatever the market conditions”.

Polypipe has a market cap of £694m at a share price of 350p. The P/E is 14.4 and the PEG is 0.6, so I also see the shares of this lower-profile mid-cap as very buyable ahead of its annual results a week on Thursday.

The post 3 mid-cap stocks I’d buy in February appeared first on The Twelfth Magpie.

More reading

• Is the FTSE 100 at risk from an overheated US stock market?

G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended Auto Trader. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.