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I find identifying the best growth stocks to be one of the most difficult tasks when it comes to investing. One option that caught my eye recently is Eurocell (LSE: ECEL).
Let's take a closer look at the business as well as the investment case.
Building for the future
Eurocell is one of the largest UPVC building products companies in its industry. It manufactures, distributes and sells products including doors, windows, roof cladding systems and more. It sells directly to consumers, builders, construction companies and more as part of its modus operandi.
Eurocell's share price has had a good 12 months, despite the economic problems affecting the construction industry.
In a 12-month period, the shares have risen 30% from 110p at this time last year, to current levels of 143p.
My investment case
As with every action I consider, I like to review and analyze the pros and cons to help me make a decision.
On the downside, I should note that volatility in the economy, such as rising inflation and interest rates, has not helped Eurocell's performance recently. This is a risk that remains, despite the Bank of England (BoE) confirming the first interest rate cut last week and inflation falling to the government's 2% target. Some of the consequences of these economic problems were the cost of living crisis and the stagnation of the real estate market, including housing construction. As global economic and geopolitical issues remain a threat, future earnings could be affected.
However, for me, the benefits outweigh the main risk of economic downturns. Firstly, I believe that once the economy recovers, Eurocell's dominant market position will allow it to take advantage of increased housing construction and infrastructure build-out. As for the former, an imbalance in housing in the UK means that there could be plenty of opportunities to increase revenue.
Furthermore, I find the stock to be excellent value for money. It is currently trading on a forward price-to-earnings ratio of just under eight. On top of this, analysts estimate that there could be double-digit growth over the next two years. However, I understand that forecasts do not always come true.
Finally, Eurocell shares offer a considerable forward dividend yield of over 6%, which is impressive. Moreover, this yield could increase in the coming years. However, I am aware that dividends are never guaranteed.
My verdict
The reason it is difficult to identify the best growth stocks is that there is no guarantee that growth will occur. So it is about making sure that the company is in a good financial position and operates in a healthy sector. In my opinion, Eurocell ticks both boxes: a strong balance sheet and potential for growth through increased construction.
I understand that for Eurocell to grow, volatility will have to decrease. However, I think that will happen, in my opinion. For that reason, I would love to buy some cheap shares as soon as I have some cash available.
