The post-pandemic surge in Rolls-Royce (LSE:RR) shares has been astonishing. They’ve cooled in recent days, but at 464.3p per share, they remain 480% more expensive than they were just two years ago.
I’m not saying that Rolls-Royce’s share price won’t continue ascending. But right now I’d rather look for other growth stocks to buy.
Sure, the FTSE 100 company’s rebound from the Covid-19 lows has been incredible. The airline industry is firing again, defence spending is robust, and its balance sheet’s in much better shape, helped by a successful restructuring under its no-longer-so-new CEO.
But it’s my opinion that these factors are now baked in to its full-fat valuation. At 28.1 times, Rolls-Royce’s forward price-to-earnings (P/E) ratio is more than double the Footsie average of around 11 times.
What’s more, significant threats exist that could derail its performance looking ahead. Company chief Tufan Erginbilgic continues to bemoan its “prolonged supply chain challenges“. Revenues could also tank if a US recession hits and the global economy cools down.
And in recent days, Cathay Pacific has grounded a number of planes owing to problems with their Rolls-Royce engines. Could the Footsie firm also be facing huge financial liabilities?
A better buy?
With this in mind, here’s a growth hero on my radar today. Like Rolls-Royce, it’s also experienced substantial share price growth in recent years.
Yet it offers far better value for money, as well as a chance for investors to profit from the artificial intelligence (AI) revolution.
Who wouldn’t want to give that a look?
Cable giant
As the digital revolution rolls on, cable manufacturer Volex Group (LSE:VLX) has plenty of earnings potential in the years ahead. It makes high-speed data cables that are used in telecommunications, data centres, and other applications that require fast and reliable data transmission.
More specifically, it’s also a leader in the manufacture of Direct Attach Cables (DACs). Why is this important? These cables provide high bandwidth with minimal latency, and as a consequence they deliver rapid and efficient data transfer. This makes them critical for AI applications.
And the business is on a roll right now. Thanks to strong demand from the electric vehicle and data centre sectors, organic revenues rose 9% at constant currencies in the three months to June, latest financials show.
A bargain growth share
At 366p per share, Volex’s share price has also detonated in recent times. It’s up more than 300% in the past five years.
However, it also provides decent value for money in my book. Its forward P/E ratio of 17.6 times doesn’t look that expensive for a growth-focused tech share.
Indeed, compared with other AI stocks like Nvidia (42.3 times), Microsoft (31.6 times) and Alphabet (21.4 times), Volex is terrifically cheap.
It also looks much better value than Rolls-Royce shares, as I mentioned above. A potential US recession might impact earnings in the short term, but If I had money to spend on a hot growth stock, this is the one I’d buy right now.
The post Forget Rolls-Royce shares! I’d rather buy this red hot growth stock appeared first on The Motley Fool UK.
Pound coins for sale — 31 pence?
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
More reading
What on earth’s going on with the Rolls-Royce share price lately?
If I’d invested £10,000 in Rolls-Royce shares on 12 November 2020, you won’t believe how much I’d have now!
Does another ratings upgrade set the stage for further Rolls-Royce share price gains?
The Rolls-Royce share price has stopped climbing. Is it about to crash?
If I’d put £5,000 into Rolls-Royce shares 4 years ago, here’s how much I’d have now
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Alphabet, Microsoft, Nvidia, and Rolls-Royce Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
