In contrast, the FTSE 100 contains a number of stocks that offer growth potential. With dividend yields being relatively high, and valuations still reasonable in many cases, now could be the right time to buy shares, rather than save money through a cash ISA.

Low valuation

One FTSE 100 company that appears to offer an impressive total return outlook is housebuilder Persimmon (LSE: PSN). The company’s financial performance has remained robust in recent years, despite the risk of Brexit and the general slowdown in the housing market. For example, the stock’s bottom line has increased at a double-digit rate in each of the last five years, with demand for newbuild properties continuing to be high.

Looking ahead, demand for new homes is likely to remain significantly above supply. Interest rates are expected to remain low as the Bank of England seeks to maintain monetary policy stimulus during the Brexit process. The Help to Buy scheme is also providing additional support for the housebuilding sector, making buying a first home easier in many cases. And with continued population growth, there’s little sign of supply being able to meet demand over the medium term.

As such, Persimmon’s valuation suggests that it could offer high return potential. It has a price-to-earnings (P/E) ratio of under 10, and its bottom line is expected to maintain positive growth over the next two years. While unpopular, it has the potential to beat the FTSE 100 and boost an investor’s retirement prospects.

Improving performance

Another company that could provide strong growth potential over the long term is technology media stock RhythmOne (LSE: RTHM). It announced on Tuesday that its CFO has resigned, with a replacement already having been made.

The company also released a first-half trading update, delivering strong growth in revenue and profitability. That growth was fuelled by an impressive performance in programmatic platform revenues, with the business delivering on its key objectives for the year. For example, it’s grown its base of data-driven engaged audience segments, while innovating around video and connected TV advertising.

Looking ahead, RhythmOne is forecast to post a rise in earnings of 11% in the next financial year. This puts its shares on a price-to-earnings growth (PEG) ratio of just 0.4, which suggests that it offers good value for money at the present time. While it’s a relatively small stock which could experience share price volatility, it appears to have a sound growth strategy as well as a wide margin of safety. As a result, its risk/reward ratio seems to be favourable at the present time.

The post Forget a cash ISA! This FTSE 100 share could help you retire wealthy appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Persimmon. 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 though, the company seems to be on a comeback towards its previous high. News released by the stock appears to be positive, and investors seem to be more upbeat about its prospects than they have been for a number of months.

Could a return to a previous high be on the cards? Or is another potential recovery opportunity more appealing for long-term investors?

Favourable outlook

Given the news that has been released by Sirius Minerals in recent months, it is perhaps unsurprising that its share price has risen by 50% to 34p. It is on track to deliver its production facility in North Yorkshire on time and on budget, and continues to make progress with its overall strategy. For example, offtake agreements for a significant proportion of its planned production have already been signed, with there being sufficient time between now and first production in 2021 for it to sign further agreements.

In addition, its financing plans seem to be progressing as well as can be expected. Improved sentiment and a higher share price may suggest that appetite for the company’s business plan remains high. Should it be able to deliver on its Stage 2 financing, its stock price could enjoy further gains over the medium term.

Valuation

Valuing a stock such as Sirius Minerals is incredibly difficult. It requires a significant amount of guesswork, and ultimately what matters to many of its investors is where its share price will be in five or 10 years’ time, rather than how it will perform during the remainder of the year.

Ultimately, though, a level of 45p still seems cheap when you consider that the company aims to be producing 10m tonnes of POLY4 fertiliser by 2024. The profit margins at current prices and using expected cost guidance seem to be high, and this could lead to the stock generating impressive levels of profitability over the long run.

As a result, if the market valued it at 45p per share back in 2016, then the stock appears to be worth significantly more than that today due to the progress it has made since then. Therefore, further growth could be ahead.

Recovery potential

Also having the potential to move closer to its recent share price high is digital advertising specialist Rhythmone (LSE: RTHM). It released an encouraging set of results on Thursday for the full year. They showed a rise in revenue of 71% to $255.1m, driven by on-platform performance and acquisitions. The company’s acquisitions seem to be integrating successfully, and it is in the process of delivering on the planned synergies from the deals.

Looking ahead, Rhythmone is forecast to post a rise in earnings of 18% in the next financial year. Despite a strong rate of growth and what seems to be a solid strategy, it trades on a price-to-earnings growth (PEG) ratio of just 0.3. This suggests that it may be undervalued and could offer share price growth potential.

Certainly, a return to its five-year high of 2,100p seems unlikely, given that it trades at a tenth of that price. But with a wide margin of safety, its capital growth could be impressive.

The post Is the Sirius Minerals share price heading for 45p again? appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Sirius Minerals. 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.

Digital advertising specialist RhythmOne (LSE: RTHM) was formerly known as Blinkx. The group’s shares have lost 55% of their value over the last year, but figures released by the company today have sent the stock up by 17%. I believe there could be more to come.

Profit up by 900%

RhythmOne’s sales are expected to have risen by 71% to $255m for the year ending 31 March. Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) for the year are expected to be 900% higher, at $14m.

Although adjusted EBITDA is the most flexible and generous measure of profit a company can use, the size of this increase suggests to me that the group really has made good progress towards a return to bottom-line profitability.

I’m also encouraged by operational metrics published today. These show that the average rate the company received for displaying its adverts rose from $1.76/thousand impressions to $2.84/thousand impressions last year.

Too cheap to ignore?

Chief executive Ted Hastings said today that the company is “fully in line with current consensus estimates” for 2019. The latest forecasts provided by the data service I use suggest that RhythmOne will report an adjusted net profit $44m for 2019, helped by a full year’s contribution from recent acquisition YuMe.

Even after today’s gains, these forecasts put the stock on a forecast P/E of just 5.7 for 2018/19. Although I’d like to see more detailed figures before making an investment decision, if recent performance is sustainable, I’d expect these shares to trade on a much higher rating in the future. They could be too cheap to ignore.

This is how you do it

Property listing website Rightmove (LSE: RMV) is the undisputed number one in this sector. Its 73% market share of internet traffic for property listings has made it amazingly profitable. Estate agents can’t afford not to list their properties on the site.

Rightmove’s dominance allows the company to raise prices regularly and maintain very high profit margins. In 2017, the group’s operating margin was 73% and it generated a return on capital employed (ROCE) of 1,020% in 2017. That’s a staggering figure. It means that last year’s profits were 10 times greater than the amount of money invested in the business.

I’d normally consider a ROCE of more than 15% to be high. So you can see that Rightmove is in a different league.

Still cheap enough to buy?

Last year Rightmove returned £140.4m to shareholders through a mix of dividends and buybacks. At the current share price of 4,462p, that’s equivalent to a total yield of about 3.5%.

The dividend yield itself is much lower, at about 1.4%. But the advantage of buybacks to companies with stable profits is that they increase earnings per share. This means that a firm’s share price can rise faster than its profits, without the stock becoming too expensive.

I’d prefer to buy these shares during a market slump. But in my opinion, today’s forecast P/E of 25 may not be too much to pay for such a profitable business. For investors looking for a sustainable mix of dividends and growth, Rightmove could be worth considering.

The post Why these super growth stocks could be too cheap to ignore appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Rightmove. 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.

However, here are two smaller companies that could perform well in future and even help you to become a millionaire.

Improving outlook

Reporting on Monday was business and company sales specialist K3 (LSE: K3C). It announced a trading update for the first six months of the year and it demonstrated a continued strong performance across all three of its divisions. It has seen a rise in revenue of around 34% compared to the same period of the previous year, while EBITDA (earnings before interest, tax, depreciation and amortisation) is 27% higher. Both sales and profit figures are within previous guidance.

Encouragingly, the company continues to gain recognition and improve market share across its three brands. It is also pursuing its stated strategy of increasing the average deal size across the company. And with a significant pipeline, it seems to be well-placed to perform well in future.

Looking ahead, K3 is expected to record a rise in earnings of 18% in the next financial year. Despite such a positive outlook, it trades on a price-to-earnings growth (PEG) ratio of just 0.7. This suggests that it offers good value for money even after its 27% share price rise over the last year. As such, it could be a stock that is worth buying, with its risk/reward ratio seemingly attractive for the long term.

Return to form

While many shares in the index are enjoying record levels of profitability, there are still a number of turnaround opportunities. For example, online advertising specialist RhythmOne (LSE: RTHM) has experienced three successive years of losses. This has caused investor sentiment in the company to deteriorate, with its stock price declining by 53% in the last year.

However, under its current management team the company appears to be making significant progress. In the current year it is due to report a return to profitability. It is expected to follow this up with a rise in earnings of 341% in the next financial year. Clearly, this is a hugely optimistic outlook for the business and there is a chance that forecasts may change between now and the end of the next financial year.

Investors, though, seem to have factored-in the uncertainty which may still face the company. RhythmOne has a price-to-earnings (P/E) ratio of just 5.7 and this suggests that there could be significant upside ahead. After a year in which the company’s stock price has performed poorly, there could be a clear catalyst to push its valuation higher. In an industry where rapid growth could be ahead, the company could enjoy high growth over the long run.

The post Two small-cap growth stocks that could still make you a millionaire appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any company 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.

But I believe at least one of these shares may now be too cheap to ignore.

A turnaround with legs?

Online advertising group RhythmOne (LSE: RTHM) is a tale of two parts. Formerly known as Blinkx, this business has reinvented itself and says that its RhythmOne advertising platform now ranks as number four in terms of global reach.

During the first half of the year, this translated into revenue of $114.5m, 72% higher than during the same period last year. The group also made some progress towards a return to profitability, generating adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of $3.1m.

Unfortunately this improvement wasn’t enough to enable the group to become cash generative. Monday’s half-year results showed an after-tax loss of $4.5m and an operating cash outflow of $3.7m, before changes in working capital.

This could be the answer

I mentioned that this was a tale of two parts. The second part of the RhythmOne story is the group’s planned $185m acquisition of US rival YuMe Inc.

YuMe is a similar size business in terms of revenue and it operated profitably during the first half of 2017, generating a net profit of $5.6m on revenue of $79.3m. Crucially, RhythmOne’s management believes it can make cost savings of $10m-$12m per year by combining the two businesses.

Based on today’s half-year figures, I estimate that cost savings of this nature would be enough to make the combined business profitable at an after-tax level. City analysts covering the stock seem to agree. They expect RhythmOne to generate an adjusted net profit of $6.5m for the year to 31 March 2018, rising to $15m in 2018/19.

Although it’s not without risk, I think the outlook for this firm is better than it has been for some years.

I think this stock could double

Shares of Hurricane Energy (LSE: HUR) have fallen by 6% from the 52-week high of 67p seen in May. In my opinion, it’s hard to justify this fall. The company has done everything it promised to do and I believe Hurricane remains one of the most attractive North Sea oil stocks.

The group has 2P reserves and 2C resources of 523m barrels on the Lancaster licence, and recent discoveries suggest there could be similar-sized assets elsewhere in the group’s portfolio. I believe there’s a real possibility this could end up as a 1bn barrel company.

Since I last looked at Hurricane in September, the company has confirmed that it will go ahead with a plan to bring the Lancaster field into early production. First oil is expected in 2019 and the development is fully funded with cash and debt, without needing any external partners.

Planned production is 17,000 barrels of oil per day, which suggests to me that this company could be generating $300m-$400m of annualised revenue by the end of 2019. This isn’t a conventional growth stock pick. But the firm’s drilling results so far have all lived up to expectations, and chief executive Dr Robert Trice is highly respected in the industry.

In my view, Hurricane could be a profitable buy at under 30p.

The post Why Hurricane Energy plc isn’t the only growth stock that could make you stunningly rich appeared first on The Twelfth Magpie.

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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.

It’s been a rough year for shareholders of Rhythmone (LSE: RTHM). Year-to-date shares in this online advertising company have fallen nearly 20% thanks to concerns about the state of the digital advertising market.

City analysts are concerned that Google and Facebook are hoovering up all of the online advertising markets, pushing out other businesses such as Rhythmone and its more substantial peer System1. Even WPP and ITV haven’t escaped. Shares in WPP have registered the most substantial decline this year, down by around a quarter year-to-date. 

However, despite these concerns, figures from Rhythmone published today show that the company continues to make progress. 

For the half year to the end of September, management is expecting to report revenues of $112m to $114m, up from last year’s first-half number of $67m. The gross margin from operations is on track to come in at 38%, up from last year’s 35.4% and for the period the company is projecting adjusted EBITDA of between $1.5m and $2m, after last year’s first-half loss of $2.6m. 

Growth through acquisitions 

Rhythmone is already growing organically and to help drive further growth, the company announced the acquisition of YuMe Inc for $185m at the beginning of September. 

YuMe will help the firm’s expansion plan as the company offers “data-driven audience insights that allow brand advertisers to engage and influence their most promising audiences and increase engagement and sales,” which is similar to Rhythmone’s existing business model. The two businesses are roughly the same size, and this merger of equals should allow the combined entity to compete more efficiently with larger peers. For 2016, YuMe reported sales of $160m and adjusted EBITDA of $10.9m. 

This acquisition is expected to turbocharge Rhythmone’s growth. For the financial year ending 31 March 2019, City analysts have pencilled in earnings per share of 42p, up 442% year-on-year. Based on this projection, the company is trading at a forward (2019) P/E of 7.3, far below the IT services sector median of 19. I believe that if the shares can gain an average sector valuation, they could be worth as much as 798p, 157% above current levels. 

Enormous potential 

As well as Rhythmone, I think FairFX (LSE: FFX) could generate impressive returns for investors. It is another growth stock that looks undervalued based on its potential. At the time of writing, shares in the provider of foreign exchange payment services don’t seem particularly cheap as they trade at a forward P/E of 365. However, analysts believe that the company is on track to report a 26-fold increase in pre-tax profit for 2018, which should translate into earnings per share of 5.4p.

At the end of September, a trading update from the firm confirmed that it is on track to hit this target. Revenue for the first half expanded 33%, and the company completed the acquisition of CardOne post-period-end. This deal should accelerate the group’s stated strategy of disrupting the SME banking space. Management believes that there should also be opportunities to improve margins and cross-sell products through the combination of the two businesses. 

The post These 2 growth stocks could still make you rich appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns shares in ITV. The Motley Fool UK owns shares of and has recommended Alphabet (A shares) and Facebook. The Motley Fool UK has recommended ITV. 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.

In-line performance

After a number of profit warnings and a vast decline in its valuation, defence company Chemring (LSE: CHG) seems to be making encouraging progress. It reported a positive trading update on Tuesday which showed it is performing in line with expectations. Revenue in the last four months has increased by 13.4% versus the comparable period from last year. Its order book of £541.8m was 2.6% lower than it was at the end of April 2017, but recent orders provide the company with confidence about its prospects over the medium term.

Of particular note for investors is the improving performance of the company’s countermeasures segment. Orders totalling £56.6m were received during the period, with operational performance improving and the second Philadelphia plant having been successfully closed. Similarly, there has been a robust performance from its energetics and sensors segments.

Looking ahead, Chemring is forecast to post a rise in its bottom line of 10% in the current year, followed by further growth of 9% next year. Despite this upbeat outlook, it trades on a price-to-earnings growth (PEG) ratio of just 1.6. This suggests that it could deliver a rising share price over the long run.

High growth/low valuation

Also offering recovery potential is online advertising company RhythmOne (LSE: RTHM). It announced news of an acquisition on Tuesday which could see it become a complete end-to-end platform in one of the fastest-growing segments of its industry. It has agreed to acquire YuMe for a total consideration of $185m based on current exchange rates. The deal will be funded through a mix of cash and shares (one-third cash, two-thirds shares) and is expected to close in the first calendar quarter of 2018.

The acquisition fits with RhythmOne’s strategy to create a unified marketplace that is efficient and effective for advertisers. YuMe offers innovation within the video advertising segment and this could complement the programmatic platform that RhythmOne has built over the last three years. During that time, the company has been transformed and is now expected to deliver a positive bottom line for the first time since 2014 in the current year.

Despite its clear recovery prospects, the stock trades on a low valuation. Next year it is expected to report a rise in its earnings of 168%, which puts it on a PEG ratio of only 0.1. As such, now could be the perfect time to buy it.

The post 2 small-cap recovery stocks that could make you brilliantly rich appeared first on The Twelfth Magpie.

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Peter Stephens 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.

The company saw pre-tax profit clock in at £119.4m during January-June, soaring from £33.1m in the corresponding 2016 period and thanks in no small part to the impact of massive divestments, including that of Vauxhall Square in London.

CLS saw EPRA net assets per share advance 9.3% year-on-year, to 268.5p, while it enjoyed a total return of 12% (up from 7.1% a year earlier). EPRA earnings per share dipped to 5.3p from 8.1p during the first half of last year.

Chief executive Henry Klotz said: “The first half of 2017 has been transformative for the Group. We crystallised the significant value our team created at the Vauxhall Square scheme and, through our significant recent investments in Germany, we have begun to redeploy the capital in well-located properties with good asset management opportunities, thereby rebalancing the portfolio.”

And Klotz struck a broadly-upbeat tone on the firm looking ahead, advising that “notwithstanding early signs of weakness in the UK property market, we are well positioned for future growth, with a high quality portfolio across the three largest European economies, a low vacancy rate with good tenants and a strong balance sheet.”

Too risky?

Despite this bubbly outlook, the City expects earnings to collapse 52% in 2017, although the bottom line at CLS is expected to get moving in the right direction from next year — a 3% rise is currently predicted for 2018.

As a consequence, the business sports a forward P/E ratio of 18.9 times, a little way above the value benchmark of 15 times or below.

Naturally, CLS is not immune to the pressures created by the political and economic turbulence currently rocking its home market — indeed, 58% of the company’s properties are located in the UK.

But glass-half-full investors may be encouraged by the London firm’s plan to expand its geographic footprint. Indeed, the imminent purchase of £165m worth of properties in Germany means that 53% of CLS’s assets will be right here in Britain, versus 31% in Germany and 16% in France.

I for one won’t be tempted to invest right now, however, given the real estate giant’s still-heavy weighting to the UK and its unappealing earnings multiple. 

Advertising ace

RhythmOne (LSE: RTHM), on the other hand, is not expected to endure the same sort of near-term earnings problems as CLS.

In the year to March 2018, the digital advertising expert is expected to flip to earnings of 1.8 US cents per share from the losses of 4.45 cents chalked up last year. And the good news does not end here, the business predicted to see earnings gallop to 5.3 cents per share in fiscal 2019.

Values investors may be out off by RhythmOne’s weighty forward P/E multiple of 24.3 times. But I reckon now could still be a good time to plough into the California company as its transition into fast-growing mobile, video and programmatic products clicks through the gears (sales in these areas soared 28% year-on-year in fiscal 2017).

The post Why earnings could be set to sink at this FTSE 250 stock appeared first on The Twelfth Magpie.

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• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Royston Wild 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.

But this is hardly a catastrophic state of affairs given RhythmOne’s rampant rise of late (the digital advertising specialist has gained 29% in value during the past month alone and hit record tops of 48.5p just last week).

Indeed, I view today’s pullback as a mere pause for breath before a likely fresh charge higher.

Chained to the rhythm

RhythmOne announced today that pre-tax losses narrowed considerably in the 12 months to March 2017, to $14.9m. This was a vast improvement from the $77.2m loss endured in the prior year.

The results underline the success of RhythmOne’s two-year transformation programme that has seen it migrate towards the fast-growth mobile, video and programmatic segments. The business saw revenues from these core operations shoot 28% higher last year, to $149m.

And RhythmOne has kept on splashing the cash in recent times to keep the sales streaming in. As well as investing $5m in product development at the core, the business also snapped up mobile rewards provider Perk Inc in December in an all-stock transaction valued at some $42.5m.

The City certainly expects RhythmOne’s massive revamp to pave the way for sustained, and electrifying, earnings growth from now on.

The San Francisco techie is expected to record earnings growth of 1.6p per share in fiscal 2018, resulting in a chunky P/E ratio of 28.2 times. But some would argue this premium is a fair rating given RhythmOne’s exceptional bottom-line prospects (indeed, the calculator bashers have chalked in an 85% rise in 2019 also).

I reckon today’s mild weakness provides an additional incentive for investors to pile in.

Turnaround titan

RhythmOne isn’t the only London-quoted stock expected to punch explosive earnings growth in the years ahead, of course.

Chemicals colossus Melrose Industries (LSE: MRO), for instance, is expected to see earnings climb 118% during 2018 following last year’s move back into bottom-line growth. And an extra 16% advance is chalked in for 2019.

Reassuringly the Birmingham company advised in recent days that trading remains “in line with expectations,” and that it was still on the hunt for another acquisition. Promisingly Melrose also advised that its Nortek business (bought in August 2016) “continues to improve its performance.” Underlying operating profit here galloped 35% higher during September-December.

Of course, the cyclical nature of the engineering sector, allied with the risks of hoovering up failing businesses and introducing huge restructuring, carries no little degree of risk.

However, Melrose has a terrific track record of creating shareholder value through its purchase of bombed-out assets before ultimately selling them on. And I believe this makes the stock fully deserving of a slightly toppy forward P/E multiple of 23.2 times. I believe the company should prove a sage pick for long-term investors.

The post 2 growth stocks I’d consider buying right now appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of Melrose. 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.

Upbeat performance

Reporting on Wednesday was online advertising specialist RhythmOne (LSE: RTHM). Its trading update for the most recent financial year shows that it has made excellent progress towards its target of returning to profitability. This was aided by a rise in core revenue of 28%, which pushed total revenue 5% higher. This led to a swing in EBITDA (earnings before interest, tax, depreciation and amortisation) of $11.7m, with the company reporting EBITDA of $1.2m.

Clearly, 2017 was a pivotal year for RhythmOne. It saw a continuation of the fundamental transformation which started two years ago that has put the company in a much stronger position. Its investment in core strategic capabilities across mobile, video and programmatic trading has been hugely beneficial. Its acceleration of the drawdown of certain historical non-core and non-programmatic product lines has also delivered improved financial performance.

Looking ahead, the company has an upbeat outlook. It is expected to deliver a black bottom line in the current financial year and then record growth of 91% in the next financial year. This puts its shares on a price-to-earnings growth (PEG) ratio of just 0.2, which indicates that they offer a wide margin of safety.

With the company’s growth strategy continuing to deliver improved performance, its shares may not remain so cheap for all that long. Therefore, now could be the perfect time to buy them.

Improving outlook

While betting company Sportech (LSE: SPO) is forecast to record a rise in its bottom line of just 3% this year, its outlook for next year is much more positive. It is expected to deliver a rise in its earnings of 17%, which has the potential to create a step change in investor sentiment following a rather mixed period for the business. For example, in the last five years its earnings have fallen in three financial years and were 9% lower in 2016 than they were in 2011.

Possibly because of its volatile track record of earnings growth, Sportech’s shares trade on a relatively low valuation. They have a PEG ratio of only 0.9, which indicates that now could be the perfect time to buy them. Certainly, competition within the gaming and betting sector is becoming increasingly intense and this has led to sector consolidation. However, with a clear catalyst to push its share price higher, Sportech could be a relatively strong performer in the long run.

The post 2 ‘undervalued’ growth shares I’d buy before it’s too late appeared first on The Twelfth Magpie.

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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.