Is the IQE plc share price the bargain of the year?
Having enjoyed significant gains in the early part of 2017, the last eight months have been somewhat disappointing for the IQE(LSE: IQE) share price. The advanced wafer products supplier is trading no higher than it was last August, which suggests that investors now view it as being fully valued.
However, with the company forecast to deliver further earnings growth over the next two years, it could offer the potential for a period of renewed growth. As such, now could be the perfect time to buy.
IQE's growth strategy seems to be relatively sensible. The company has sought to put in place a sound balance sheet through which to deliver growth that is highly sustainable. To this end, it conducted a capital raising last year which provided it with the capital required to broaden and expand its operations into new areas which were previously difficult for it to successfully target.
The result of seeking to keep risks at a sensible level could be high rewards over the long run. It may also mean that the volatility which can be present among technology-focused stocks is somewhat lacking, with the business appearing to have a sound means of generating improving profitability through areas such as Photonics and the adoption of its VCSEL technology in mass market consumer applications.
Looking ahead, IQE is expected to report a rise in its bottom line of 12% in the current year, followed by further growth of 35% in the next financial year. Clearly, its growth rates are relatively high, but what may be surprising to investors is the company's valuation. It trades on a price-to-earnings growth (PEG) ratio of just 0.7, which suggests that it may offer a wide margin of safety.
Certainly, investor sentiment may not be particularly strong. Many investors may be of the view that the company is due a pullback after its gain of 5.4 times in the last three years. But with a relatively low valuation, it appears to offer growth at a very reasonable price and could be worth buying for the long run.
Also offering the potential to deliver high returns is independent direct carrier billing company Boku(LSE: BOKU). It provides a means for consumers to pay for goods and services on their smartphone, with the amount charged to their mobile phone bill. Its technology essentially makes a smartphone a secure payment method and it could be seen as a substitute to a debit card.
Boku reported improving financial performance on Tuesday when it released its results for 2017. The company's net loss was cut by 64%, while its revenue increased 42% to $24.4m. It also saw an increase in monthly users to 8.1m, an impressive rise of 241%. And with the company optimistic about its future prospects, it would be unsurprising for its progress to continue.
Clearly, Boku is a relatively high-risk stock. Technology can change rapidly and may mean that it's unable to deliver on its long-term potential. But for less risk-averse investors, it could be worth a closer look.
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Peter Stephens 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.