A hot growth and value stock I’d always buy over Tesco plc

A positive set of half-time numbers has helped Volution Group (LSE: FAN) to avoid the sell-off currently washing across global share markets.

The stock — which provides ventilation solutions to the residential and commercial construction sectors — was last unchanged from Thursday’s close and still within striking distance of recent record peaks around 200p.

Volution announced that revenues during the 12 months to July 2017 clocked in at £185m, up 20% year-on-year, or 15% at stable exchange rates. The company saw organic revenues increase 7.6%, it advised, with 13% the result of new acquisitions.

The Crawley business declared that “organic growth was helped by a strong performance in the Nordics, where revenue for the year grew by 5.1% on a constant currency basis, and in our UK Residential New Build sector, where revenue grew by 8.3%, along with continuing growth in the order book.”

A positive outlook

Chief executive Ronnie George unsurprisingly struck an upbeat tone following last year’s results, commenting that: “I am delighted with the progress that the Group has made during the year. The challenges in UK Residential RMI, most notably in the public sector, have continued in the year just ended but we have delivered good organic growth in our other market sectors.”

While uncertainty continues in the UK economy as a consequence of plans to leave the EU, “our increasing market and geographical diversity gives us confidence for the year ahead,” he added.

George noted that Private RMI had returned to growth in the second half of the year, helped by the introduction of various sales and product initiatives. And Volution has further developments under way for the current financial period straddling both the public and private market sectors.

The City expects it to maintain its upward path given these promising signals, and to follow up the 8% earnings rise predicted for fiscal 2017 with an additional 6% advance in the current period. And these projections mean the company offers plenty of bang for your buck, its forward P/E ratio of 13.8 times falling below the widely-considered value yardstick of 15 times.

I reckon this is a bargain given the excellent sales opportunities created by the company’s broad market and geographic footprint, not to mention its proven success on the M&A front.

Past its best

In fact, these qualities make me much more bullish on the ventilation expert’s long-term earnings potential than that of Tesco (LSE: TSCO).

The number crunchers do not share my sense of dread however, and are predicting earnings rises of 44% and 31% in the years to February 2018 and 2019 respectively. But I am not convinced Britain’s biggest retailer has what it takes to post sustained, and stratospheric, bottom-line growth as the fragmentation in the grocery market intensifies.

Indeed, while latest Kantar Worldpanel numbers showed Tesco’s sales up 2.3% in the 12 weeks to July 16, the continued progress of Aldi and Lidl pushed the firm’s market share 0.5% lower year-on-year to 27.8%.

While a forward P/E ratio of 18.2 times may not be greatly appealing on paper, a sub-1 PEG of 0.4 would suggest Tesco provides decent value for money. I am not convinced, however, given the fragility of current earnings forecasts, and I for one won’t be diving into the supermarket any time soon.