While the valuations of many stocks have risen to all-time highs in recent months, they may not necessarily be overvalued. Certainly, ratings may indicate there is little upside potential on offer. However, when their growth potential is factored-in, such stocks could offer capital growth prospects. As such, they could be worth buying right now. Here are two shares which seem to fit into that category.
Impressive growth
Reporting on Thursday was infrastructure and support services company Stobart (LSE: STOB). It announced to the market that it is on track to deliver its targets of 2.5m passengers at London Southend airport and 2m tonnes of biomass supply annually, by the end of the 2018 calendar year. Further targets have been set to 2022, with the company well-positioned to continue to deliver improving operational performance.
Looking ahead, Stobart faces a somewhat uncertain future. Its CEO, Andrew Tinkler, is stepping down but will remain as an Executive Director. As with any company, this inevitably brings a degree of risk and uncertainty, but since the business seems to have a solid strategy this may not cause significant disruption.
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With the company trading on a price-to-earnings (P/E) ratio of 37, it appears to be overvalued at the present time. However, since it is expected to report a rise in earnings of 171% in the next financial year, its price-to-earnings growth (PEG) ratio of 0.2 suggests it could offer upside potential. While the company has ambitious growth targets and is undergoing a period of major change, it seems to have a sufficiently wide margin of safety to merit investment for the long term.
Solid outlook
Also offering capital growth potential is international consultancy company, RPS Group (LSE: RPS). It is forecast to record a rise in its bottom line of 9% in the next financial year. This is ahead of the growth rate of the wider index, and means it has a PEG ratio of 1.5. This could be relatively low considering the company’s track record of growth, as well as its long-term strategy which seems to be progressing well according to its most recent update.
As with Stobart, RPS is about to change its CEO. Its valuation indicates there is a margin of safety on offer, while its income potential means it could become more popular among investors. That’s especially the case since inflation is forecast to rise from its already high level of 2.9%.
RPS currently yields 3.9% from a dividend which is covered 1.7 times by profit. This means it could raise shareholder payouts at a faster pace than profit growth without harming its scope to reinvest capital for future growth. A rising dividend also seems affordable even with the company’s acquisition programme factored-in. According to its most recent update it is seeking to engage in M&A activity, which could act as a positive catalyst on its financial performance.
