One dirt-cheap growth stock I'd buy today and one I'd avoid

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McColl's

McColl's Retail Group(LSE: MCLS) has found itself on the back foot on Monday following the release of full-year trading numbers.It was last 7% lower on the day.

At face value, the latest update from McColl's could be viewed as pretty impressive. The convenience store colossus saw total annual revenues burst through the £1bn milestone for the first time, it advised today (these jumped 19.1% during the 12 months to November 2017).

The revenues surge was thanks in no small part to the 298 outlets McColl's snapped up from The Co-Operative Group in the summer.

Chief executive Jonathan Miller said that the results demonstrate "that this is now a business of real scale." He added: "McColl's is well positioned to continue to take advantage of the growing convenience market, with clear opportunities to enhance organic growth across our estate, as well as continued expansion through our acquisition programme."

The Brentwood-based firm said that it is taking steps to address any near-term supply issues following the collapse of Palmer and Harvey late last month as the wholesaler supplies 700 of McColl's' 1,611 stores. It has inked a short-term deal with Nisa to help those affected stores.

Shop around

However, investors have been scared into selling up today following signs of intensifying pressure on the supermarket star's top line.

On a like-for-like basis, McColl's saw revenues rising just 0.1% during fiscal 2017 as sales at its convenience stores rose 0.1% but turnover in its newsagents dropped 0.2%. And things really took a turn for the worse during the last quarter when like-for-like sales dropped 1.1% due to "declining traditional categories and unfavourable weather."

While convenience, along with home delivery, may remain the brightest growth spots in the UK grocery market, operators like McColl's are clearly not immune to broader pressures.

City analysts are currently forecasting a 29% earnings increase in the current fiscal year. However, the last quarter's worrying performance suggests that this heady growth forecast could be in line for downgrades in the weeks and months ahead, making the supermarket operator's cheap forward P/E ratio of 12.1 times somewhat redundant.

With the strain on shoppers' wallets likely to continue, prompting them to look for cheaper alternatives to put in their baskets, and the company also battling a rising cost base, there is too much risk here for my liking.

Revenues bolting higher

I would be much happier to plough my hard-earned investment cash into Trifast (LSE: TRI) today.

In the year to March 2018 the industrial fastenings manufacturer is predicted to report a ripping 23% earnings advance. And it is expected to follow this with a 3% advance in fiscal 2019.

A forward P/E ratio of 18 times may not be anything to write home about. However, a corresponding PEG multiple of 0.8 suggests that Trifast is actually exceptionally priced when you consider its anticipated earnings trajectory.

Indeed, I reckon the huge investment it is making should continue to underpin exceptional sales growth across all of its territories (organic revenues boomed 4.8% during the six months to September). And the company's robust balance sheet should facilitate further earnings-boosting M&A action now and later.

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Royston Wild 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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