These growth stocks are trading at whopping discounts

Ten pound notes

The enduring supply and demand chasm in the housing market convinces me that Redrow (LSE: RDW) should continue generating eye-popping earnings expansion long into the future.

Although a declining buy-to-let market and broader economic uncertainty are expected to put the brakes on home price growth in the UK, average home sales are likely to continue ticking higher thanks to a combination of favourable lending conditions and the government’s long-running failure to address the country’s homes shortage.

Indeed, Redrow’s record order book of £879m as of December — up 35% year-on-year — illustrates the robustness of buyer demand despite rising fears surrounding Brexit and falling sales to private landlords. And the business continues to aggressively build its land bank to facilitate future growth (this rose 18% during July-December, to 25,300 plots).

Too cheap to miss?

Against this backcloth the City expects Redrow to print a 21% earnings decline in the year ending June 2017, and to follow this up with a 9% rise in the upcoming year.

As a result, Redrow offers stunning bang for your buck. In fiscal 2018 the builder sports a P/E rating of just 7.5 times, falling well below the bargain benchmark of 10 times, while a sub-1 PEG reading of 0.8 rubber-stamps the firm’s position as a brilliant value stock.

These levels more than bake-in the risks of rising turbulence in the homes market, in my opinion, and should lay the groundwork for a fresh share price spurt (Redrow hit record peaks above 590p per share in May).

On the up

VP (LSE: VP) is another London-quoted growth play trading far too cheaply right now.

The Harrogate company has a proven knack of doling out double-digit earnings growth, and is expected to keep this trend going with an 11% rise in the year to March 2018. An extra 6% rise is marked in for fiscal 2019.

These projections mean that it carries a forward P/E ratio of just 11.3 times, while a prospective PEG ratio falling bang in line with the generally-regarded value standard of one.

This is exceptional value for money given the equipment rentals play’s excellent sales momentum. VP saw revenues set a fresh record last year, it announced this month, the top line swelling 19% year-on-year to hit £248.7m. This in turn propelled pre-tax profit 17% higher to £34.9m.

And underlining the company’s perky progress, chairman Jeremy Pilkington noted that “the new financial year has started well and at this very early stage, I believe there is every prospect that we may look forward to another year of significant progress.”

Its key markets remain pretty strong overall, both at home and abroad, and the business is looking to build on this favourable backdrop through its ongoing acquisition drive. The company has already bought up Jackson Mechanical Services and Zenith Survey Equipment this year to boost its tool hire business in the UK.

I expect VP, supported by its mega-low valuations, to continue to sweep higher and to take out this month’s record peaks of 890p per share sooner rather than later.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Redrow. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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