Growth stocks have taken a battering this year. To me, that means I should be looking for bargains. Here are two growth stocks that I snapped up for my portfolio at what I think are relatively low prices.
Time for luxury
Luxury watch (and jewellery) retailer Watches of Switzerland (LSE:WOSG) is growing fast. It reported revenue of £1.24bn in 2022, up from £0.6bn in 2018. A chunk of the growth has come from the recently entered US market. European expansion is also underway — a store opened in Sweden this year, and five more are planned.
And the company expects the growth to continue. Its management expects the company’s sales in the US to match that of its biggest market, the UK, in the “medium term“. Given the size of the US market, that forecast seems achievable and then some. Profitability has also come by leaps and bounds. After breaking even from 2018 to 2020, net income doubled from £51m to £101m from 2021 to 2022.
Growth and profitability improvements have come despite a challenging retail environment. But that is perhaps to be expected. A person who happily spends thousands and thousands on a timepiece is usually insensitive to the rising price of food and electricity.
A weakening pound makes WOSG’s revenues from the US and Europe look more impressive expressed in Sterling. If that trend reverses, the reverse will be true. The larger the US and European operations get, the more the company will be exposed to exchange rate differences. The company plans to spend up to £80m next year on expansion. That’s a significant amount and makes the potential for failure more worrying. Still, given the company’s track record, I am happy to keep it in my Stocks and Shares ISA.
A thinking person’s growth stock
YouGov’s (LSE:YOU) mission statement is to understand “What the world thinks.” It specialises in online opinion polling and translates its findings into actionable market research for big brands and governments.
The company is doing well. In October, it released its full-year results for the year ended 31 July 2022. All three of its divisions registered double-digit revenue growth on an underlying basis, which excludes acquisitions and exchange rate movements:
Data products up 23%
Data services up 11%
Custom research up 21%
That caps off an impressive five-year run in which revenues went from £117m in 2018 to £221m in 2022. Net income is also trending higher (£8m in 2018, £17m in 2022) but has been volatile. Margins were also up in 2022.
The company’s UK home market, where it built its reputation, is its slowest growing market. That’s okay because it is expanding rapidly overseas. Growth in the Americas, particularly in the US, mainland Europe, and the Asia-Pacific regions, is impressive.
YouGov is coming up against established competitors like Gartner in the US. There is a potential for a price war. It costs YouGov, in the form of rewards points for filling in surveys, to gather its data. In addition, the model is, in theory, simple to copy. Set up a website, gather users, and poll them for information. Trust is the company’s real asset, and it only takes a few lousy poll predictions to start to erode that trust. Still, I have no hesitation in investing in this growth stock.
James McCombie has positions in Watches of Switzerland Group PLC and YouGov. The Motley Fool UK has recommended YouGov. 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.
Motley Fool UK 2022