Since the start of the year, the easyJet (LSE: EZJ) share price has risen from 1,500p to 1,750p. That’s a gain of 17% in just over five months. This suggests that investor sentiment is improving, and that the company is delivering on its growth strategy.
However, could further gains be ahead for the company after such a strong period? Or is another growth stock worth buying ahead of it?
Changing outlook
The performance of easyJet from a business perspective has been rather mixed in recent years. The company posted a fall of 23% in its earnings last year, with this following a decline of 22% in the prior year. This means that in just two years it has recorded a fall in net profit of around 40%, with challenging operating conditions being the key reason.
Terror attacks in Europe and an increasingly competitive industry outlook meant that the company was struggling to generate improving sales and profitability. However, with consumers now seemingly more willing to travel and higher fuel costs causing unsustainable competition to recede, the prospects for the business seem to be improving.
Investment potential
In the current year the company is expected to report a rise in earnings of 35%, followed by further growth of 16% next year. Increasing passenger numbers are set to provide a clear catalyst for the business over the medium term, and investors appear to be factoring this in to the company’s valuation.
However, with the stock trading on a price-to-earnings growth (PEG) ratio of 0.9, it seems to offer value for money at the present time. Meanwhile, a dividend yield of 3.8% is forecast for next year, with shareholder payouts expected to be covered twice by profit. As a result, a further rise in its share price to 2,000p seems to be likely over the medium term.
Growth potential
Also offering strong growth potential at the present time is telecoms company KCOM (LSE: KCOM). It reported positive results on Tuesday for the full year, with it continuing to invest in its operations in order to drive future growth. It anticipates that full-fibre deployment will be available to 100% of its addressable market by March 2019. And with more customers opting for full-fibre over copper, it could be a growth area for the business.
KCOM is expected to deliver earnings growth of 20% next year. Its consumer division seems to be performing well, while it is making improvements to its enterprise business. Despite its strong growth outlook, the company trades on a PEG ratio of 1.1. This suggests that it offers a wide margin of safety.
Furthermore, with a 6.1% dividend yield that has the capacity to rise if profit growth can meet forecasts over the medium term, the total return potential of the stock seems to be high. As such, now could be the right time to buy it.