Small-cap Quixant (LSE: QXR) flies under the radar of most investors but that doesn’t mean you should ignore the company. Indeed, over the past few years, the company has gone from strength to strength as revenues and profits have surged.
For 2017 City analysts are expecting the company to report a pre-tax profit of £12.6m on revenues of £81.7m. For 2016 it reported a pre-tax profit of £11.7m on revenues of £90.4m so profits are growing steadily. Earnings per share, however, are set to rocket higher by 34% this year, following growth of 44% for 2016. Since 2013 earnings per share have risen 180%.
As Quixant has grown, shareholders have reaped the benefits. Over the past five years, shares in the company have gained 370% significantly outpacing the wider market.
Quixant is an interesting business. The company is a leading provider of specialised computing platforms and monitors for gaming and slot machine applications. Management is extremely optimistic about the firm’s outlook as the market for gaming continues to expand and the company leverages its existing position in the industry to grow sales and margins. City analysts are similarly excited with earnings growth of 18% pencilled-in for 2018 following 2017’s growth surge.
Growth shares such as Quixant tend to trade at a high valuation and the gaming company is no different. The shares currently trade at a forward P/E of 24.2 and only yield 0.7%. Nevertheless, when you consider the firm’s projected and historic growth, it looks as if it is worth paying a premium to get your hands on the shares.
McCarthy & Stone (LSE: MCS) is the UK’s leading retirement housebuilder and is well positioned to grow rapidly in the years ahead. The UK’s ageing population presents a huge challenge for homebuilders. There’s a structural shortage of suitable housing options for older people and this group of customers tends to require a more specialised offering than first-time buyers.
McCarthy has a virtual monopoly over this market being the only nationally recognised brand. This monopoly puts the firm in a prime position to continue its growth and at the time of writing, shares in the group offer exposure to this growth at a knock-down price.
City analysts are expecting McCarthy to report earnings per share of 15.4p for the fiscal year ending 31 August, up 11% year-on-year. Further growth is expected for the following fiscal year. For the year ending 31 August 2018, the City is projecting earnings growth of 22%. Based on these estimates, shares in the company are trading at a forward P/E of 10.7 falling to 8.3 for fiscal 2018.
Considering the company’s growth rate, as well as the size of the market McCarthy has available to it, this valuation seems to seriously undervalue the group and its prospects. As well as the depressed valuation, the shares also support a dividend yield of 3.1% and the payout is expected to grow by around a fifth next year.
Overall, McCarthy looks to be a interesting undervalued opportunity.
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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. 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.