2 dirt cheap stocks growing by leaps and bounds

The financial year to October was another good one for self-storage chain Safestore (LSE: SAFE) as the firm managed to improve just about every important metric used to judge its progress. But even with another solid period of growth behind it and a share price that’s risen over 40% in the last year, the company still looks reasonably valued to me at 12.9 times trailing statutory earnings.

In fiscal year 2017 the group’s revenue jumped 10% in constant currency terms to £129.9m as it opened six new outlets, acquired 12 during the year, and boosted like-for-like sales by a very respectable 3.3%.

LFL growth was driven by an increase in same-store occupancy rates from 73.7% to 75% and a 1.3% uptick in constant currency average storage rates to £27.35. Looking ahead, there’s good reason to believe there’s further progress to be made on these metrics as Safestore integrates its 24 newly-acquired properties, which have lower occupancy and storage rates.

Furthermore, demand should remain robust as the trend among consumers towards living in small flats that can’t fit all their belongings continues as the price of housing remains high in both the UK and Paris where it operates. There’s also good reason to expect the company to continue growing through acquisition and organic store openings with impressive free cash flow of £50.3m and a decent loan-to-value ratio of 36%.

While the company’s shares look far less cheap on an underlying basis, whereby earnings per share are 23.3p instead of 37.4p excluding the gain on investment properties, Safestore is still a highly cash generative property business that may attract investors who are bullish on the sector’s medium-term outlook.  

Ramping up for further growth

Another fast-growing business that’s looking cheap to me is JD Sports Fashion (LSE: JD), which trades at a relatively sedate 15.4 times forward earnings despite more than doubling revenue and growing pre-tax profits tenfold over the past five years alone.

Of course, markets are forward-looking, but the outlook for JD Sports still seems quite bright to me as the athleisure trend continues to gain converts and its larger rival, Sports Direct, seems to find new ways to shoot itself in the foot by the day.

In the half year to August, the group’s sales rocketed a full 41% to £1,367m as LFL sales increased 3%, new stores were opened, outside brands were acquired and online sales took off. While gross margins did fall a bit to 47.4%, operating profits still grew a robust 33% year-on-year to £103.3m and the company’s net cash position remained very robust at £222.7m.

This war chest gives management significant scope to continue its international expansion through store openings and an increased online presence. With just 452 stores in Europe and 39 in Asia against 1,480 JD branded ones in the UK alone at period end, the scope for international expansion is rather mind boggling.

With cash in hand, highly profitable operations and plenty of expansion potential, I think JD Sports could be a bargain pick-up for the long term at its current valuation.

But if Safestore and JD Sports are still a bit too pricey for your blood, I recommend checking out the Motley Fool’s free report on one surprising growth stock trading at under seven times earnings.

And don’t let this bargain valuation fool you as the company has increased earnings by double-digits four years in a row and the Fool’s top analysts reckon there may be more good news to come.

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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