Young investors have one big advantage on their side, time. When you’re young, you have a longer investment horizon before retirement.
This means young people can afford to take on bigger investment risks in order to reap greater rewards. When you’re young, you have more time to recover from losses, so short-term blips in the value of your investments don’t make too big a difference in the long term.
With this in mind, here are three growth stocks which may be worth a closer look.
Transition
First up is Sage (LSE: SGE), the UK’s largest listed technology firm following the takeover of ARM Holdings by Japan’s Softbank. The business software company is a market leader in the UK, with a majority of British businesses using its payroll-processing and accounting software. Globally, the firm has more than 6m small and medium-sized businesses users.
The Newcastle-based company is undergoing big changes as it makes the transition from selling perpetual licenses to a subscription-based model. This creates sizeable challenges in terms of strategy execution and investment, but there are also potentially huge rewards. Subscriptions generate predictable recurring revenues and tend to improve customer retention, which could help the company to fend off cloud-based competitors, such as Xero.
As with valuations, the stock isn’t cheap with a price-to-earnings ratio of 23.2. But it’s hardly surprising given the company’s outlook of steady earnings growth. With earnings set to expand 16% this year, its forward P/E ratio seems more reasonable, at 19.9. Moreover, the stock pays a modest and growing dividend, with shares currently yielding 2.2%. Looking forward, its prospective dividend yield is forecast to rise to 2.4% this year, and 2.7% in 2018.
Online retail
The online retail market is booming and one retailer which is benefiting from the trend is online-only clothing firm ASOS (LSE: ASC). Although the company has yet to prove itself as a reliable profit machine, it has been generating double-digit revenue growth year after year.
Right now, ASOS is facing margin pressures due to rising costs and the weak pound. In its latest trading update, it warned that gross margins fell by 30 basis points in the four months leading up to 31 December. However, City analysts seem sanguine — they still expect underlying earnings to grow by 24% this year, with revenue growth of 30% for the full-year.
Investors see the massive growth potential too, as ASOS trades at a massive premium to its multi-channel rivals, with a forward P/E of 72.2, with a price-to-sales ratio of 3.2.
Student property
Student property is a compelling asset class for long-term investors, due to the non-cyclical nature of demand for higher education and steadily growing student enrolment numbers.
Unite Group (LSE: UTG) is my preferred pick from the sector, as it is the leading developer of purpose-built student property. With 11 new accommodation blocks expected to be complete within the next three years, the REIT has a very attractive development pipeline. This could add around 12p-14p to its annual EPS, and potentially boost its net asset value (NAV) by almost 10%.
The stock currently trades at a 3% discount to its NAV of 646p per share, with the REIT currently yielding 2.9%.
