How cheap is that? The million dollar question rings in our minds every day about all the things we buy and stocks are no different. Value, yes, we want to see it in the equation, but also the utility of how it can be used or enjoyed over time. I've got two companies that exhibit an attractive growth factor underneath a profitable business, and that means over time the initial cost of the share price will seem cheaper.
M2 Group Ltd (ASX: MTU), the owner of businesses like iPrimus, Dodo Australia and Commander communications systems, made two acquisitions since 2011, but the most recent half-year ending December showed us what the company can do organically, and they did superbly with a 66% gain in revenue and an underlying net profit up 38% to $43.8 million.
Bundling mobile, internet, fixed-line phone, and even offering electricity utility bills is covering the major telecom services many people want. Full-year FY2014 guidance is for revenue to be $970 million to $1.03 billion, so compare that with the $681 million it did in FY2013. Underlying net profit is expected to be $85 million – $95 million, up about 54% to the midpoint of the estimate from the $58.4 million in the pcp.
Fortescue Metals Group Limited (ASX: FMG) has been keeping to its plans of expanding iron ore production capacity to 155 million tonnes per annum (mtpa), increasing actual ore processed to about 24 mtpa and 30 mtpa for Q1 and Q2 respectively in FY2014. It expects to hit the 155 mtpa capacity level by the end of March this year.
Getting to and maintaining that level will put it in the same playing field as the other majors in the Pilbara and importantly supply it enough revenue to pay down debt that it accumulated to accomplish this production ramp-up. Start taking away the interest paid on the debt, and the savings fall to the bottom line, and that will benefit per share earnings and share price appropriately.
Adding to that, reducing its C1 production costs down from about $50 /wet metric tonne, to $33 /wmt, has helped raise NPAT by 260% to $1.7 billion.
Foolish takeaway
Growth stories like these are always exciting, but you have to look deeper to see if the growth rate is sustainable and learn the company's strategy to put that realised growth to future use.
