Investing in Growth Stocks; Growth stocks are shares of firms whose sales and earnings have risen — and are expected to increase — faster than the sector, market, or both averages.
Many characteristics can distinguish a UK growth stock from the crowd. It may have a cutting-edge product that outperforms its competitors and generates outstanding revenue growth. Profits may also increase at a fast pace as a result of a successful acquisition-based expansion plan.
Growth firms may also operate in a fast increasing industry or area. Today, this may apply to a UK stock that manufactures electric vehicles, provides cloud-based software that allows people to work remotely, or delivers healthcare services. Based on its location, a stock may potentially have excellent growth possibilities.
Investing in Growth Stocks
Let’s look at three UK stock market companies whose earnings have been rising strongly in recent years.
| Growth stock | HQ | Description |
| Games Workshop Group (LSE:GAW) | Nottingham, UK | A designer, manufacturer, and retailer of tapletop gaming products |
| Water Intelligence (LSE:WATR) | Palm Springs, US | A spotter and repairer of water leaks |
| Softcat (LSE:SCT) | Marlow, UK | A provider of IT services |
Games Workshop Group
The Games Workshop Group is a behemoth in the world of tabletop gaming. In its 40-plus years of existence, it has amassed a strong for Investing in Growth Stocks and devoted audience thanks to prominent platforms like as Warhammer 40,000.
The high quality of its miniatures, as well as the depth of the mythology generated around its game platforms, offer it a significant competitive advantage. The company has also been strengthening its presence in international markets and has invested considerably in its e-commerce activity.
Games Workshop is actively looking on ways to increase royalties from licencing its intellectual property to mainstream media.
The immense potential here is demonstrated by the massively successful Total War: Warhammer III video game, which was released in early 2022. These forays into the media might potentially significantly improve sales of
Water Intelligence
Water Intelligence assists in resolving the issue of water leaks. It identifies, locates, and repairs leaks for residential, commercial, and municipal clients using advanced equipment.
Water conservation is becoming increasingly crucial as concerns about climate change and water shortages grow. As a result, there is a growing push to locate and repair leaks in order to help conserve the precious commodity.
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Water Intelligence has offices in the United States, the United Kingdom, Canada, and Australia. The deterioration of infrastructure in these areas is causing a rise in water loss and for Investing in Growth Stocks, as a result, an increase in demand for the company’s services. Climate change is also increasing the frequency of such incidents by placing additional demand on pipelines and other essential infrastructure.
Softcat
Softcat offers a wide range of IT services to organisations. Profits have soared dramatically as the digital revolution has taken hold. And its market-leading portfolio of products has resulted in collaborations with some of the world’s top technology businesses. Microsoft, Lenovo, Cisco, and Apple are among its partners.Investing in Growth StocksInvesting in Growth StocksInvesting in Growth Stocks
Earnings per share increased at a 24% annual rate throughout the five years to July 2021.
This UK growth share allows investors to profit from many fast-growing technology developments. Softcat, for example, creates cloud-based infrastructure for organisations and works with them to optimise their networks. Demand for such services is increasing rapidly as flexible working practises become more popular.Investing in Growth StocksInvesting in Growth StocksInvesting in Growth Stocks
In addition, the firm offers cyber security solutions to safeguard consumers from the rising threat of electronic fraud.
UK growth stocks right for you?
A growth-based investing strategy is essentially centred on profiting from share price increase. This is distinct from income investing, in which investors attempt to build wealth by collecting dividend payments.
Ideally, one should strive to invest in UK growth companies as early in the life of a firm as feasible. Strong profits growth feeds into rapid share price rise, so the sooner you get in, the more you stand to win.
However, this does not imply that the window of opportunity is closing. Some UK growth stocks have been delivering strong profit growth for many years and look to be in excellent condition to continue doing so.
Take, for example, the rental equipment provider Ashtead Group (LSE: AHT). Prior to the pandemic, the FTSE 100’s share price increased on an annual basis.
Analysts predict Ashtead’s profits to continue expanding steadily as infrastructure expenditure in its core US market increases and the company remains devoted to revenue-boosting acquisitions. Profits have begun to recover following the initial Covid-19 setback, and analysts predict that profits per share will grow 14% this fiscal year and 12% next.
Ashtead demonstrates how a successful UK growth stock has the ability to boost long-term gains. According to statistics provider Refinitiv, this business produced the highest return on investment of any Footsie stake throughout the 2010s, increasing at a compound annual growth rate (CAGR) of 43%.
However, investors should keep in mind that many businesses with promising growth prospects sell at high price-to-earnings (P/E) ratios. And this may be highly dangerous.
Expensive US tech stocks Netflix, Meta, and Amazon have been among the most famous casualties this year on signs of slowing growth. In the UK, technology-focused growth stocks like IT services provider dotDigital Group and video game developer Team17 Group have also fallen sharply as earnings have come under the spotlight. Both businesses traded on P/E ratios above 40 times around the start of the year.
Buying UK growth stocks doesn’t always yield instant results. Some firms take time to deliver strong growth (or any at all) at the beginning as they focus on increasing revenues at the expense of profitability. Here you are buying potential rather than tangible rewards. More established growth shares, however, can offer the best of both worlds.
