It's getting harder to find stocks trading at good value thanks to the market rally that has sent the S&P/ASX 200 (Index: ^AXJO) (ASX:XJO) over 5800 points for the first time since April 2015.
For any stock picker, it's important to identify why a stock is trading at lower levels. Is it because the market expects its earnings to materially decrease? An example of that would be Crown Resorts Ltd (ASX: CWN) with the VIP Chinese gamers fiasco.
In other cases it might just be that the market isn't willing to pay as much for future earnings growth. This means that the company is still expected to grow at the same rate as another, but it's valued at a lower multiple of earnings.
I think the below stocks have exciting growth prospects and are trading at much more attractive levels compared to six months ago:
Capilano Honey Ltd (ASX: CZZ)
Capilano is a producer of 100% Australian honey with a market capitalisation of $163 million. It has been one of the most exciting small caps since listing at $2.12 in July 2012 in growing by 714% to today's price of $17.27.
However, since May 2016 Capilano's share price has actually declined by 25%, which I think just provides a much more appealing entry price for a growing company.
In FY16 it grew revenue by 11%, net profit after tax by 21% and the dividend by 6.66% which was a strong result. Capilano could have another pleasing result in FY17 as overseas sales continues to ramp up. In FY16 export sales to China grew by an impressive 59.6% and I think there could be another large jump in export sales when it next reports.
It's also launching new products to try to boost sales further, an example of this is a new product called "Beeotic Prebiotic Honey" which is promoted to boost digestive health. This product will particularly appeal to consumers who often use honey for its supposed medicinal effects.
Capilano Honey is trading at 15.7x FY16's earnings with a grossed up dividend yield of 3.31%
Class Ltd (ASX: CL1)
Class is the self-managed superfund (SMSF) accounting software provider with a market capitalisation of $326 million. It's been another small cap star having grown 98% since its debut in December 2015 to today's price of $2.79.
It has also been a stock whose price has suffered over the last few months and is down 30% since mid September 2016.
Class had an amazing FY16, it grew revenue by 45%, the dividend by 67% and its number of billable portfolios by 37%. Class is in the growth industry of SMSFs – an increasing number of SMSFs are still being created each year and each of them will need their accounts processed.
Accountants love Class for its cloud accounting and efficiency gains that it provides. Accountants love it so much that Class' retention rate has been over 99% since FY16 (excluding AMP Limited (ASX: AMP) taking its SMSFs onto its whole platform).
Class is trading at 40x FY17's estimated earnings and has a dividend yield of 1.43%.
Foolish takeaway
I think both of these stocks are worth an investment at this price, Capilano is clearly trading at a cheaper earnings multiple so is probably the safer option at today's prices. However, over the long term I think Class will provide the stronger returns for the patient investor.
Both Class and Capilano have exciting futures, but our number one dividend pick for 2017 could be an even better buy.
