2 cheap growth stocks I’d buy in July

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

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

More on Investing Articles

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

2 reasons why I’m loading up on FTSE 100 shares

This Fool thinks FTSE 100 shares look cheap. With that, he plans to continue snapping them up today. Here's one…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Why wait? I’d buy FTSE 100 shares now before the next stock market rally!

Our writer explains why he'd snap up what he sees as bargain FTSE 100 shares now rather than waiting in…

Read more »

Investing Articles

Is it time for me to change my tune about Rolls-Royce shares?

This Fool has steered clear of buying Rolls-Royce shares. But after its recent performance, he's reconsidering his stance. Here's why.

Read more »

Investing Articles

Aviva share price: 3 reasons to consider buying for 2024

The Aviva share price is still lower then when I bought some nearly a decade ago. Here's why I'm thinking…

Read more »

Front view photo of a woman using digital tablet in London
Investing Articles

These 2 shares could bank me £328 a month in second income

Jon Smith runs through two FTSE stocks that have above-average dividend yields that could pay out a generous second income…

Read more »

Stack of one pound coins falling over
Investing Articles

This passive income plan is simple – but could earn me thousands!

Christopher Ruane explains how putting a fiver a day to work in the stock market might help him earn thousands…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Charticle

After record profits, are Lloyds shares a buy, sell, or hold?

As Lloyds pulls in pre-tax profits of £7.5bn, boosts its dividend, and continues to repurchase shares, are the company’s shares…

Read more »

Investing Articles

NatWest shares: is a once-in-a-lifetime opportunity on the way?

Should investors get ready for a unique opportunity as the UK government plans to sell off its NatWest shares later…

Read more »