Beating the stock market is never easy. However, with the FTSE 100 trading at a new all-time high, finding stocks which offer above-average growth at reasonable prices is becoming more challenging. Despite this, growth stocks which appear to be undervalued are still in existence for investors who are willing to scour the markets looking for them. Here are two prime examples which could deliver index-beating returns in 2017 and beyond.
Improving performance
Reporting on Monday was high-performance polymer solutions specialist Victrex (LSE: VCT). It announced a rise in group revenue of 12% for the first six months of its financial year, with volume growth contributing 5% towards sales growth. With no change to the company’s gross margin, this means gross profit was also 12% higher when compared to the same period of the prior year. This allowed the company to raise dividends per share by 4%, which puts it on a dividend yield of around 2.3%.
In terms of the breakdown of its performance, Victrex endured a somewhat mixed period. Its core business enjoyed strong growth and this helped to offset lower year-on-year volumes in Consumer Electronics. Similarly, the performance in the company’s Medical division remains muted, which reflects the maturity of the US Spine market. However, with a strong product pipeline and scope for growth within the differentiated products space, its outlook remains upbeat.
In fact, Victrex is forecast to record a rise in its bottom line of 7% in the current year, followed by further growth of 10% next year. This puts it on a price-to-earnings growth (PEG) ratio of only 1.6, which suggests that it offers growth at a reasonable price. Therefore, now could be the perfect time to buy it.
Low valuation
Also offering the scope for FTSE 100-beating performance is plastic components supplier Carclo (LSE: CAR). It has a strong track record of growth, with its bottom line having risen at a double-digit pace in each of the last three years. In fact, its earnings have grown at an annualised rate of 25% during the period. This has helped to push the company’s share price almost 30% higher during the last three years.
Despite this high rate of growth, Carclo continues to offer excellent value for money. For example, it trades on a price-to-earnings (P/E) ratio of 13, which suggests further share price growth could be ahead. Making this more likely is a high forecast rate of earnings growth over the next two years. Carclo is expected to record a rise in its bottom line of 13% this year, followed by further growth of 21% next year.
This puts its shares on a forward P/E ratio of just 9.6, which suggests they could rise significantly and remain modestly valued. Therefore, they could continue to outperform the wider index, as they have done by 22% in the last three years.