I reckon identifying the best growth stocks is one of the trickiest tasks when investing. One pick that caught my eye recently is Eurocell (LSE: ECEL).
Let’s take a closer look at the business, as well as the investment case.
Building for the future
Eurocell is one of the largest UPVC building products firms in its industry. It manufactures, distributes, and sells products including doors, windows, roofline systems, and more. It sells direct to consumers, builders, construction firms, and more as part of its modus operandi.
The Eurocell share price has had a good 12-month period, despite economic issues impacting the building industry.
Over a 12-month period, the shares are up 30% from 110p at this time last year, to current levels of 143p.
My investment case
As with all the stocks I consider, I like to review and break down the pros and cons, to help me make a decision.
Starting with the bear case, I must note that volatility in the economy, such as higher inflation and interest rates, hasn’t helped Eurocell’s performance recently. This is an ongoing risk, despite the first interest rate cut being confirmed last week by the Bank of England (BoE), and inflation coming down to government targets of 2%. Some by-products of these economic issues included a cost-of-living crisis, and the property market stalling, including house building. With global economic and geopolitical issues still a threat, future earnings could be dented.
However, for me, the pros outweigh the main risk of economic shocks. First of all, I reckon once the economy gets back on track, Eurocell’s dominant market position puts it in the driving seat to take advantage of increased house building, as well as infrastructure building. In terms of the former, a housing imbalance in the UK means there could be plenty of opportunities to grow earnings.
Next, the shares look excellent value for money to me. They currently trade on a forward price-to-earnings ratio of just below eight. In addition to this, analysts reckon double-digit growth could be on the cards for the next two years. However, I do understand that forecasts don’t always come to fruition.
Finally, Eurocell shares offer a chunky forward dividend yield of over 6%, which is impressive. Plus, this could potentially grow in the years to come. However, I’m conscious that dividends are never guaranteed.
My verdict
The reason why it’s tricky to identify the best growth stocks is because there’s no guarantee growth will occur. So it’s all about ensuring the firm is on a good financial footing, and operates in a thriving sector. Both of these boxes are ticked in Eurocell for me, through a strong balance sheet, and potential for growth through increased construction.
I do understand that in order for Eurocell to grow, volatility will need to subside. However, I reckon this will happen, in my view. For that reason, I’d love to snap up some cheap shares as soon as I have some cash to spare.
