Utilitywise (LSE: UTW) might be a better pick. City analysts expect Utilitywise to report EPS growth of 37% for full-year 2016 and based on this prediction, the company is trading at a forward P/E of 7.7.
This might seem like a low valuation for a business that’s expected to chalk up EPS growth of 37% next year. But Utilitywise’s low multiple reflects the City’s concern about the way the company recognises revenue and the lack of cash the group is generating from operations.
However, today the group announced that it’s working hard to change the way it does business by renegotiating contracts with existing suppliers. These negotiations are designed to help the group reach its fundamental goal of improving cash conversion to offset concerns about the way the company recognises revenue. In theory, this change of strategy should translate into a higher valuation for the company’s shares.