2 cheap growth stocks I’d buy in July

These two shares could deliver high capital growth in the long run.

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While there is a considerable amount of doom and gloom around at the present time following the EU referendum and the general election, there are still growth opportunities available for long-term investors. Certainly, the UK’s economic outlook is less assured than it was a year ago. However, some stocks continue to deliver high growth prospects at a reasonable price. Here are two such companies which could be worth buying right now.

Growth potential

Reporting on Wednesday was software and services company Gresham Technologies (LSE: GHT). It announced a rise in revenue of 26% compared to the first half of the previous year. Within this figure, total Clareti revenue is 52% higher. This includes the contribution from recently acquired C24 Technologies. Clareti software revenues were up 136% versus the same period of the prior year, which means adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) will be strongly ahead of the prior year.

During the first half of the year, the company signed eight new CTC clients across a wide range of industry segments and geographies. This should help to improve the diversity of the business, thereby reducing its overall risk profile. Given that the company continues to trade in line with previous guidance, its outlook remains relatively upbeat.

Looking ahead, Gresham Technologies is forecast to increase its earnings by 27% in the current year. This growth rate is around four times that of the wider index, and suggests that investor sentiment may improve as the year goes by. With a price-to-earnings growth (PEG) ratio of just 1, the company appears to be undervalued given its outlook. As such, now could prove to be a buying opportunity.

A return to profitability

Also offering investment potential within the IT sector is Redcentric (LSE: RCN). The supplier of IT managed services has posted two consecutive years of pre-tax losses, but is now expected to return to profitability in the current year. This has the potential to provide a boost to market sentiment, which could push the company’s share price higher after its decline of 51% in the last year.

Looking ahead to next year, the company is forecast to report a rise in its bottom line of 17%. This puts its shares on a PEG ratio of 0.8, which indicates there is upside potential. Certainly, there is scope for a downgrade to its forecasts as it transitions from loss to profit, but with a relatively wide margin of safety it could prove to be a sound long-term buy.

Furthermore, Redcentric is expected to recommence dividend payments next year. Although the company has a forward yield of just 0.6%, dividends are due to be covered almost 10 times by profit. This suggests they could rise rapidly, while the payment of a dividend also suggests the company’s management has confidence in its long-term outlook.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens has no position in any shares mentioned. 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.

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