Are you a growth investor on the hunt for some bona fide bargains? If so then Shoe Zone (LSE: SHOE) may well be high on your wish list.
City brokers expect the company’s earnings to leap 57% in the fiscal year ending September 2020. This leaves it trading on a rock-bottom forward price-to-earnings ratio of 10.3 times. And to put a cherry on top, Shoe Zone carries a bulging 6.2% dividend yield, too.
I love a good growth and income share but I’m not tempted to buy Shoe Zone. Fresh trading data this month hasn’t boosted my appetite either. Pre-tax profits dropped to £9.6m in fiscal 2019 from £11.3m previously, driven by flattish revenues and a rise in store-related costs.
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That low earnings multiple suggests that this retailer is one of those classic ‘dividend traps.’ With the retail sector stuck in first gear I fear that some sizeable downgrades to analyst estimates could be just around the corner.
A better growth buy
In my opinion Springfield Properties (LSE: SPR) is a much more attractive low-cost growth stock. This is not only because the housebuilder’s forward P/E ratio of 9.5 times beats the retailer’s corresponding reading. It’s because its earnings outlook is much stronger for the near term and beyond.
While issues like mounting competition, rising costs, and a drawn-out Brexit process cast a shadow over Shoe Zone, the huge supply and demand shortage in the UK housing market promises to keep Springfield’s bottom line moving higher well into the next decade.
Pre-tax profits jumped 69% in the fiscal year to May 2019, even as the threat of a no deal withdrawal from the European Union loomed.
Put a spring in your step
It’s no wonder that City analysts expect Springfield’s decent record of annual profits to keep rolling, then. A 9% earnings rise is predicted for the current financial year, and an 11% increase is forecasted for fiscal 2021.
The Scottish builder is preparing to deliver solid growth beyond the immediate term, too. Huge investment in its land bank of late gives it work until the mid-2030s. And it has planning permission to build on more than a quarter of its bank (of 15,938 plots as of last May), too.
Meanwhile, the acquisition of Walker Group in 2019 has boosted its geographic footprint north of the border to facilitate future growth. Last year also heralded a significant strategic move when it signed a collaboration with Sigma Group to deliver private rented homes in Scotland. This is the first agreement in this sub-sector for Springfield and one which targets “the release of hundreds of homes over the coming years.”
There’s plenty of reason to be excited over the homebuilder’s earnings outlook for the years ahead, then. Combined with that low valuation and a bumper dividend yield (of 4%), I reckon Springfield is a brilliant all-rounder to buy for your ISA today.
