Stock market

Forget Rolls-Royce and consider buying these cheap growth shares!

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Rolls Royce Holdings (LSE:RR.) has proven to be one of London’s best-performing shares in the post-pandemic era. Driven by a rebounding airline industry and impressive restructuring initiatives, FTSE 100 In the last 12 months alone, the engineer has grown by a total of 180%.

Solid momentum in its civil aerospace and defense markets suggests the company can keep flying. City analysts are certainly optimistic. They expect revenues here to grow 8% in 2024 and then 23% the following year.

But I am concerned about the company’s stratospheric rating after these price hikes. Shares of Rolls-Royce now carry a price-to-earnings (P/E) ratio of 28.3 times.

If cracks start to appear in the stock investment case, higher prices may signal a correction in the share price. And confidence in Rolls could plummet if the airline industry experiences a fresh downturn, supply chain problems worsen, or its self-help measures begin to run out of steam. These are very real risks, in my opinion.

2 buys better?

I don’t believe investors need to pay a king’s ransom to acquire white-hot growth stocks. Many top FTSE 100 and FTSE 250 The stock currently trades at rock-bottom earnings multiples.

Here are two I think savvy investors need to consider buying today.

QinetiQ Group

As with Rolls-Royce, QinetiQ Group (LSE:QQ.) shares have been buoyed by strong conditions in the defensive market. But with a forward P/E ratio of 11.8 times, the business still offers superior value, in my opinion.

The defense sector average is about 32 times higher.

Business at QinetiQ is booming as the West responds to rising tensions with Russia and China. Organic sales and operating profit rose 19% and 25%, respectively, in the six months to September. Meanwhile, new orders hit a record high of £953m.

Revenue growth may slow as Western arms rebuild. But for now, rapid armament measures seem to be accelerating. NATO expects spending among its members to continue to increase in 2024UnparalleledSpending between the European Union and Canada increased last year.

Expected increases in spending among NATO countries.
Source: NATO

Against this backdrop, Citibrokers expects QinetiQ’s annual revenue to grow 11% over the next two years.

Vodafone Group

Unlike Rolls-Royce and QinetiQ, Vodafone GroupThe (LSE:VOD) share price has underperformed over the years. The telecom company has struggled to grow profits as tough conditions in Germany and heavy capital spending weigh on it.

These risks remain. But City analysts believe the footy firm is about to turn the corner. Revenue is expected to grow by 22% and 18% in the next two financial years.

As a result, Vodafone shares trade at a forward P/E ratio of just 9.2 times. At these levels I think it’s worth considering opening the position.

In Germany – where revenues have been hit by recent changes to service bundling laws – things are starting to improve. The company also recently sold its Spanish and Italian divisions to raise much-needed cash and focus on its core markets.

Vodafone can expect demand in its African territories to grow now and in the coming years. Service revenue at its majority-owned Vodacom unit rose 8.8 percent between September and December.


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