While the FTSE 100 trades within 5% of its all-time high, there are still a number of stocks offering growth at a reasonable price. Certainly, they may face an uncertain future in many cases. The economic outlook for the UK and EU is, after all, highly uncertain. Brexit could cause a further decline in consumer confidence, while monetary policy may tighten over the medium term.
Despite this, here are two companies which could be worth buying due to their high growth potential and low valuations.
Bright future
Reporting on Tuesday was travel company Thomas Cook (LSE: TCG). Its pre-close trading update showed that it is on track to meet previous guidance and that its operating conditions have improved. In recent years the company and the wider industry have seen demand for holidays to Turkey and North Africa come under pressure due to safety fears. However, in summer 2017 there has been a pickup in demand to the region, with customers apparently being attracted by the good value deals that are on offer.
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Looking ahead, the company is on track to meet its operating profit guidance for the full year. Its Winter 2017/18 programme is 37% sold, which is in line with the rate from the previous year. This could benefit from a stronger customer satisfaction score, while deals with Expedia and LMEY may provide further scope for sales growth over the medium term.
Thomas Cook is forecast to post a rise in its bottom line of 16% in the current year, followed by further growth of 19% next year. Despite this, it trades on a price-to-earnings (P/E) ratio of just 14.1. When this is combined with its forecast growth rate, it equates to a price-to-earnings growth (PEG) ratio of just 0.8. This suggests that now could be the perfect time to buy the stock, since it offers a wide margin of safety ahead of what may prove to be a prosperous, albeit volatile, period for the wider industry.
Growth potential
Also offering strong growth potential is low-cost airline Wizz Air (LSE: WIZZ). The company is expected to deliver a rise in its bottom line of 24% in the current year, followed by further growth of 17% next year. It trades on a PEG ratio of just 0.7, which suggests that its shares could continue to rise even after their 75% gain during the last year.
Trading conditions have been relatively positive according to the company’s most recent update. Demand for low-cost travel in Central and Eastern Europe remains high. With the company having a highly efficient business model with low costs, it could continue to be competitive on price versus rivals. This could aid growth in passenger numbers after their rise of 25% in the company’s most recent quarter.
Of course, the outlook for travel companies may be difficult to predict given the uncertain outlook within the European economy. However, with a wide margin of safety and a competitive advantage over its peers, Wizz Air seems to be a worthwhile investment.
