Planning to take off somewhere for the Easter weekend?
Can't say I blame you, but it might be worth sneaking in a quick look at your portfolio before you go.
A couple of companies have dropped into 'bargain' territory recently, and I don't think they'll be sticking around there forever.
G8 Education Ltd (ASX: GEM) is a so-called 'multiple arbitrage' company – or in some quarters, the 'most reviled business on the ASX'.
G8 achieves success for shareholders by buying private businesses at a low Price to Earnings (P/E) valuation (G8's target range is 4-6x) and bundling them under a single, publicly traded umbrella, effectively selling them to investors for a higher price (current P/E of 19).
While this might sound almost a little deceptive, it's an effective business model that streamlines management costs and can deliver very rapid growth to shareholders if done well.
G8's management has been doing it right, as the listing of junior competitor Affinity Education Group Ltd (ASX: AFJ) goes to show – imitation is the sincerest form of flattery.
Share prices have dropped recently over fears that government legislation could impact the childcare business, but in the absence of any concrete changes I believe the market is simply repricing the stock out of fear. The stock has also dropped due to news of the delayed settlement of the acquisition of several childcare centres.
Paying a 6.2%, fully franked, growing dividend, I took the opportunity to buy G8 shares at $3.71, and am considering adding to my holding at today's prices.
FlexiGroup Limited is another company trading at a knock-down price despite a powerful 4.9% dividend and strong business prospects.
Driven by a recent acquisition, FlexiGroup recently became the market leader in New Zealand, and management has outlined the potential for several synergies as well as the ability to bid competitively on major contracts in that country.
While the acquisition is not expected to contribute to profits this year, FlexiGroup is still on track to achieve ~10% profit growth on last year, a trend that should continue for the foreseeable future.
Trading on a P/E of 12, FlexiGroup also looks cheap compared to the rest of the ASX, and is high up on my list of prospective acquisitions.
Competing with FlexiGroup for my investing dollars is Ainsworth Game Technology Limited (ASX: AGI), which trades on a P/E of 15 and pays a 3.6%, fully franked dividend.
After a half-yearly results hiccup, where declining Australian earnings dragged overall profit down, Ainsworth shares have recovered somewhat to hover around the $2.80 mark, waiting for guidance on which way to go.
While the drop in Australian revenues was big and serious, Ainsworth's international businesses are a bigger drawcard and have much faster growth and a bigger pool of potential customers compared to Australia.
I expect it won't be much longer before international revenues surpass domestic ones, which would make Ainsworth one of the last remaining stocks that hasn't experienced a huge run-up in its shares as a result of foreign currency exposure.
Ainsworth shares are moderately risky, but still look like a discount purchase in light of these factors.
