What makes a growth share undervalued? That can be hard to decide, as theyre often accompanied by high P/E multiples but when were looking at impressive earningsexpectations, that can still be cheap.
Look at Cambian Group (LSE: CMBN), which describes itself asone of the largest providers of specialist behavioural health services for children in the UK.
The shares haves been erratic over the past few years, but thats not surprising as weve been seeinggrowing pre-tax losses for four years in a row now. But the company has decided to selloff its non-core adult services divisionand focus on its key childrens services, and that strategy looks like its paying off.
Pre-tax profit this year is forecast to come in at 15.9m, rising to 18.8m for next year, with earnings per share predicted at 5.8p and 7.4p for the two years respectively.
Cash to come
The balance sheetisstronger after the adult services disposal raised 379m in cash, which enabled the settlement of all bank debt. At the end of 2016, net cash stood at 116m, and Cambian announced its intention to return 50m in excess capital to shareholders.
Thatsgoing to be in the form of a special dividend, and while theres been no ordinary dividendfor a few years, at full-year results time we heard that the company intends to resume its progressive dividend policy this year and expects to pay an interim dividend for the first six months.
The 171p shares are now on a forward P/E of 25, dropping to 22 for 2018, but with PEG multiples of 0.2 and 0.8, and looking at Cambians impressive turnaround, I think thats cheap.
Share price dip
The RPC Group (LSE: RPC) share price has been falling back this year, from a peak of around 1,075p to todays 766p but that still represents a very nice 178% gain over the past five years.
The manufacturer of plastic packaging and containers has grown its EPS from 34.4p in 2013 to an impressive 62.2p last year, and with rises of 10% and 8% forecast for the years to March 2018 and 2019 respectively, we should see that grow to around 74p and thats a tempting growth prospect.
Surprisingly, RPC shares are on undemanding forward P/E ratios, of just 11 for the current year and dropping to 10.2 next and thats with above average dividend yields of 3.4% and 3.8% pencilled-in.
Debt
There is some significant debt on the books, amounting to 1,049m at the last year-end though the company did describe its balance sheet as strong, after a year in which it raised new equity to cover two acquisitions. Debtstood at 1.8 times EBIDTA for the prior year, and the firm reckoned ithad total finance facilities of 2,245m available at 31 March.
Id like to see debt reduced (simply because it can place a company at risk in the event of any downturn in business), but that level seems fine from a liquidity standpoint and I dont see any immediate problem.
The firms acquisitions, which includeincluding British Polythene Industries and Global Closure Systems, appear to be integrating well, and the global future for the plastics business is surely strong.
With last years results looking good and analysts buoyant over RPCs future, I see the price fall since January as providing a nice buying opportunity.
Big money fromgrowth shares
Growth shares like these can be very profitable, and the tempting pick uncovered in ourTop Growth Share From The Motley Fool report has been raking in the cashfor years.
The pastfive years have brought indouble-digit annual earnings growth, and the City’s experts are predicting two more years of solid growth ahead of us. On top of that,a progressive dividend policy adds an extra attraction to the mix.
What to know more? Just click here right now for your personal copy, and itwill be despatched across the wires direct toyour email inbox, completely free of charge.
