Despite increased uncertainty in the outlook for the UK economy, share prices continue to be relatively high. The FTSE 250 is up nearly 7% since the start of the year, with investor sentiment still bullish overall. This makes it more difficult to find growth stocks which offer a wide margin of safety. However, here are two shares which could have just that, as well as bright earnings growth outlooks over the next couple of years.
Improving performance
Reporting on Monday was technical fluid power products distributor, Flowtech Fluidpower (LSE: FLO). The company reported a rise in revenue during the first half of the current year of 24.7%. This was driven by the continued momentum experienced across all of its business divisions, as well as the positive contribution from acquisitions.
The Flowtechnology division increased revenues by 6.8%. It recorded strong organic growth in difficult trading conditions. It also benefitted from the performance of Indequip, which was acquired in February 2016. The company’s Power Motion Control division increased revenues by 53.7%, with recent acquisitions and organic growth combining effectively.
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Looking ahead, the company is on target to meet expectations for the full year. It also announced today the acquisition of Orange County Limited, which is an exclusive UK supplier and distributor of storage equipment. This could contribute positively to the company’s future performance, while other acquisitions look set to form part of the firm’s pipeline.
With Flowtech Fluidpower forecast to record a rise in earnings of 29% in the current year, it seems to offer upside potential. This is enhanced by a price-to-earnings growth (PEG) ratio of just 0.4, which suggests that now could be the right time to buy a slice of the business for the long term.
Return to growth
Also offering the prospect of share price growth is Wynnstay (LSE: WYN). The supplier of products and services to the agricultural sector has experienced a couple of challenging years, with its bottom line forecast to decline in the current year by 3%. This could lead to a rather disappointing performance from its share price in the short run after its 0% return since the start of the year.
However, looking ahead to next year the company is due to return to high levels of growth. Its earnings are forecast to increase by 10% next year, which puts its shares on a PEG ratio of 1.8. Beyond 2018, more growth could be on the cards as the company’s strategy may continue to bear fruit.
In addition, Wynnstay could become a more enticing income share over the medium term. Its dividends are currently covered 2.3 times by profit, which suggests they could increase at a faster pace than profit and leave the company in a strong financial position. Therefore, while the stock may only yield 2.3% right now, its yield may increase in future and become more enticing to a wide range of investors as inflation moves higher.
