If you are looking for an undervalued growth stock to include in your portfolio, I highly recommend taking a look at Countryside Properties (LSE: CSP).
Turnaround complete
Five years ago, Countryside was loss-making and heavily indebted. However, a jump in sales in recent years have helped the company move from a loss of £12m of 2014 to a profit of £148m for 2018.
And analysts are expecting further growth in 2019 and 2020. The City has pencilled in earnings per share (EPS) growth of 15% for this year, which, if achieved, will take EPS up to 40.6p from last year’s 35.4.
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Further growth is expected in 2020 where analysts have pencilled in an increase of 12% to 45.3p. Based on these estimates, shares in Countryside are currently dealing at a forward P/E of 8.1 falling to 7.2 for 2020. A PEG ratio of 0.7 tells me the stock offers growth at a reasonable price at this level.
On top of the company’s attractive valuation, the shares also support a dividend yield of 3.8% and the payout is covered more than three times by EPS, as well as being supported by the firm’s net cash balance of £45m.
Explosive growth
As well as Countryside, I’m also excited about the prospects for JD Sports Fashion (LSE: JD).
Shares in JD don’t look particularly cheap at first glance, but considering the company’s growth over the past 10 years, I believe it is worth paying a premium to invest in this business.
Indeed, over the past five years, the group’s earnings per share have expanded at a compound annual rate of 43%. I think it is unrealistic to expect this rate of growth to continue, but even if growth slows to 10% per annum (City analysts are predicting EPS growth of 11% this year and 13% for 2020), I believe investors buying today will be well rewarded over the medium term.
For example, according to my calculations, based on analysts’ EPS target of 27.7p for 2019, five years of growth at 10% will leave the firm earning 44.6p per share by 2025. As shares in the company have historically commanded a P/E of around 18, EPS of 44.6p implies the shares could be worth as much as 803p, a gain of 61% from current levels, excluding dividends.
Vast profits
The final growth share I would buy in April is 4imprint (LSE: FOUR). You might not think that supplying so-called direct marketing materials such as branded pens and notebooks is a particularly lucrative business, but it is for 4imprint.
Over the past five years, the company’s net profit has jumped 500%, and City analysts don’t expect this trend to come to an end any time soon. They’ve pencilled in EPS growth of 15% for 2019 and 12.2% for 2020.
Based on these projections, shares in the company are currently dealing at a forward P/E of 21.6, which might look rather expensive at first glance, but historically shares in 4imprint have traded in the 20 to 34 range. This is justifiable in my opinion because 4imprint is an exceptionally profitable business. Last year it earned a return on capital employed — a measure of profitability for every £1 invested in the business — of 75%, putting it in the top 1% of the most profitable companies trading in London as measured by return on capital.
