Do we have a new bull market coming for the FTSE 100? Over the medium term we really cant tell, but shares generally look cheap to me and in the long run well surely see Londons top index enjoying a steady rise. Good times to be looking for growth candidates then? I think so.
Down but upbeat
Look at Redrow (LSE: RDW), whose shares have bizarrely dropped5.6% to 398p on the day the homebuilder released upbeat first-half results. With revenue up 8% to 603m, a half-year record, earnings per share gained 15% and the interim dividend was doubled to 4p per share. This came after legal completions rose by 18%, and the firms gross margin perked up to 24.2%.
So whats the growth picture? Well, before today analysts were forecasting a 13% EPS rise for the full year to June 2016, which would put the shares on a PEG ratio of 0.6 lower is better, and growth investors typically look for 0.7 or less. But with chairman Steve Morgan telling us that demand for new homes remains robust and that hes confident this will be another strong year of growth for Redrow, I could see that 15% first-half gain carrying on through.
That would drop the PEG a fraction and put the shares on a P/E of only 7.8 and thats just got to be cheap!
Top property site?
Casting a growth eye on property website operator Zoopla (LSE: ZPLA) throws up a PEG ratio of 0.7 for the year to September 2016. Although the share price was pushed up in the first half of 2015, the later loss of sentiment has brought us a 24% fall since the end of June, to todays 205p. Although were looking at a prospective P/E of 19.5, which is ahead of the FTSEs long-term average of around 14, EPS forecasts make that seem not too stretching at all.
Zoopla recorded a 29% rise in EPS in 2015, and theres the same again currently being predicted for this year. UK interest rates will be remaining low for longer than many of us expected and we might not even see a rise until 2017 now, the UK economy is gathering strength, and the housing market remains buoyant and I can see another couple of strong growth years for Zoopla.
Online payments
The online payments business is risky, as weve seen with the sad declineof Monitise in the past couple of years. But things are looking very different for Paysafe (LSE: PAYS), formerly known as Optimal Payments, whose shares are up 61% over the past 12 months, to 342p. The recent FTSE retreat has pushed the price down, mind, and weve seen a 14% fall since 4 February. So does that give us a cheaper growth opportunity?
A fourth quarter update told us that revenue and earnings will be ahead of market expectations and the markets had a 29% EPS rise penciled in. Theres a further 40% lift to EPS forecast for 2016, and that would put the shares on a distinctively average P/E of 14.5 and a PEG of just 0.4.
And if that doesnt look like a decent growth opportunity, then I dont know what does.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK owns shares of Monitise. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
