The UK homebuilding market is booming, and investors are trying to get in on the action from every angle. Unfortunately, this rush to profit has sent valuations across the sector sky-rocketing, leaving slim pickings for those investors who want to buy cheap stocks.
However, auxiliary homebuilding stocks, such as component suppliers may still prove to be good investments, and I believe I have found two such stocks that fly under the radars of most investors.
Hiding from the rest of the market
Abbey(LSE: ABBY) is a property development, plant hire and property rental firm operating in Ireland, the UK, and the Czech Republic. With a market value of £256m, the firm is certainly not small, but it does fly under the radar of most investors.
Over the past four trading days, only 1,252 shares in the company have changed hands, that's an average of 313 per day. The long-term average is close to 150 shares per day.
Still, even though Abbey is hidden away in a corner of the market it doesn't mean that the company is not successful. Over the past five years, pre-tax profits have grown from £12m to £61.5m and earnings per share have increased nearly 500%. Analysts expect the company's growth to slow over the next two years with earnings per share falling to a low of 126p for the fiscal year ending 30 April 2018, before rebounding to 136p for the following year.
Still, even based on these estimates, shares in Abbey look relatively cheap. At the time of writing shares in the group are trading at 1,269p, for a cyclical low P/E of 10.1. Looking to 2019, the shares are trading at a forward P/E of 9.3 making them one of the cheapest in the homebuilding sector. Over the past five years, shares in Abbey have returned 170% and it looks as if these gains are set to continue.
As well as Abbey, PVC windows and doors manufacturer Eurocell (LSE: ECEL) also looks to be a cheap play on the UK's booming housing market.
Like Abbey, Eurocell has grown rapidly over the past three years but the market has failed to recognise this growth. Earnings per share have nearly doubled since 2014 and City analysts are forecasting 10% earnings per share growth for the year ending 31 December 2017, followed by 8% growth for 2018. Despite these steady growth forecasts, shares in Eurocell are currently trading at a forward P/E of 12, falling to 11.2 for 2018.
And unlike Abbey, which only offers shareholders a dividend yield of around 1%, shares in Eurocell currently yield 3.5% and the payout is covered twice by earnings per share. What's more, management has a record of hiking the company's dividend by around 1p per year and based on historical growth, the payout is set to hit 10.2p for 2018, giving a yield of 3.9%.
On the road to a million
Hidden growth stocks have the potential for massive gains, but because these stocks are usually hidden from plain sight, you do need to do your research before buying.
And to help you assess these opportunities, our top analysts here at the Motley Fool have put together this free report.
The report is a collection of Foolish wisdom, which should help you improve your investment returns, streamline your investment process and avoid those companies that might cost you money.
All you need to do to gain access to this report is click here to download your copy today.
Rupert Hargreaves has no position in any 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.