Buying a great company in its early stages of development as a small cap is the holy grail of stock picking.
So, in an attempt to discover some of the markets future stars, here are five UK small caps that look cheap compared to their projected earningsgrowth.
Hot stocks
Utilitywise(LSE: UTW) tops the list of the UKs hottest growth stocks.
Currently trading at a forward P/E of 11.7, Utilitywises earnings per share are set to expand by 37% this year, giving a PEG ratio of 0.3. A ratio of less than one indicates that the companys shares are undervalued compared to projected growth.
Utilitywise currently offers a dividend yield of 2.7%, and earnings are set to grow a further 40% during 2016.
Marketing agencyCommunisis(LSE: CMS) digital transition is gaining traction and the companys earnings are set to charge higher over the next few years as a result.
Communisis currently trades at a forward P/E of 7.9 and supports a dividend yield of 4.2%. Earnings per share are expected to grow by 39% this year, so the companys shares trade at a PEG ratio of 0.2.
Moreover, Communisis earnings are set to expand 15% during 2016. The company is trading at a 2016 P/E of 6.9.
Boring but exciting
Trifasts(LSE: TRI) business is boring, but the companys growth is exciting. A producer of nuts, bolts and screws, Trifasts earnings are set to grow by 31% during 2015.
The company is currently trading at a forward P/E of 12.6 and a PEG ratio of 0.4. Analysts figures show that Trifast is set to offer a dividend yield of 1.7% during 2015.
AGA Rangemaster(LSE: AGA) is benefiting from the UK housing boom as demand for the companysAGA Range Cookers & Ovens grows.
AGAs earnings are set to grow by 25% during 2016, which, when combined with the companys lowly 2016 P/E of 5.1, means that the group is trading at a PEG ratio of 0.2 thats astonishingly cheap.
However, it should be noted that AGA has a large pension deficit that it is struggling to bring down, hurting the companys valuation.
Undervalued
Vislink(LSE: VLK) is one technology company thats missed out of the recent tech bubble.
Vislink currently trades at a forward P/E of 10.4 and supports a dividend yield of 3.1%. During 2015, the companys earnings per share are set to expand by 19%, indicating that the company is trading at a PEG ratio of 0.6.
Further, earnings growth of 8% is pencilled in for 2016. Using these figures, Vislink is trading at a 2016 P/E of 9.6. The companys shares are set to yield 3.3% during 2016.
Great outlook
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.