Right now, UK growth stocks are generally out of favour. Looking across the market, I see plenty of growth companies whose share prices are well off their recent highs.
A bull market – which history suggests is probably not that far away – could change things, however. With that in mind, here are two beaten-up growth shares that are worth a closer look today.
A key player in the EV industry
First up is Volex (LSE: VLX). It’s a UK-based provider of power cords and cables. A global operator, it serves companies across a range of industries.
Volex shares currently trade at around 250p. And at that share price, they sport a forward-looking price-to-earnings (P/E) ratio of just 10.3.
That multiple strikes me as way too low.
This is a company that has exposure to a number of high-growth markets including the electric vehicle (EV), data centre, and healthcare markets. As a result, it’s generating solid top- and bottom-line growth.
For example, last month, the company advised that it expects to post revenue of at least $710m and underlying operating profit of at least $66m for the year ended 2 April 2023. That represents year-on-year growth of 16% and 17% respectively.
We have built a strong, resilient business, aligned to key market sectors with long-term structural growth characteristics.
Volex Executive Chairman Nat Rothschild
There is some uncertainty here due to the state of the global economy, of course.
As a manufacturer of power cords and cables, Volex is the kind of company that could be impacted negatively by a prolonged economic downturn.
The long-term outlook is attractive, however, thanks to the company’s exposure to the EV and data centre markets.
So, I think the share price deserves to be considerably higher than its current levels.
I expect it to rise in the next bull market.
Poised to benefit from the digital revolution
The other growth stock I want to highlight today is S4 Capital (LSE: SFOR). It’s a digital advertising firm that was set up by ex-WPP chief Sir Martin Sorrell.
S4’s recent full-year 2022 results showed that the company continues to grow at an impressive rate. For the year, it posted like-for-like net revenue growth of approximately 26%.
And looking ahead, management expects to see further growth. For 2023, it has provided guidance of like-for-like net revenue growth of 8-12%.
The valuation here doesn’t reflect this growth rate, however.
Currently, the company’s forward-looking P/E ratio is just 11.5 – well below the UK market average.
Now, it could be the company’s exposure to the advertising industry (which is cyclical) that is scaring investors off here. Or, it could be the fact that the company’s debt levels are rising. And these are valid risks.
However, all things considered, I think the stock deserves a higher valuation.
So, I expect it to perform well in the next bull market.
The post 2 UK growth stocks that could explode in the next bull market appeared first on The Motley Fool UK.
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Edward Sheldon has positions in Volex Plc. The Motley Fool UK has no position in any of the shares mentioned. 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.
