As Brexit continues to weigh on investors’ minds, it takes a brave person to buy into expensive growth stocks right now. Here are three such companies, all of whom are scheduled to report to the market in September.
AIM-listed Craneware (LSE: CRW) develops and licenses computer software for the US healthcare industry that helps hospital managers identify operational and financial risks. It’s a superb company based on its consistently great returns on capital, fat margins, lack of debt and market-leading status.
Unfortunately, holders rushed to sell a couple of months ago after it revealed a big drop in sales that would prevent it from meeting its full-year expectations. The slowdown has been attributed to teething problems relating to Craneware’s new cloud-based analytics platform (Trisus Health Intelligence).
Having fallen 37% since late June, Craneware now occupies a place on my watchlist. While tempted to buy given the recent price weakness, I’m content to wait for full-year numbers on 3 September before potentially opening a position. The shares still change hands on a lofty 34 times forecast earnings for FY20, after all.
Also reporting next month is a former holding of mine — videogame services provider Keywords Studios (LSE: KWS).
The recent explosion of interest from investors in all-things gaming-related has proven a huge boon for the Dublin-headquartered business with its value soaring 400% from September 2016 to August 2018. Since then, however, the direction of its share price has been less predictable.
This isn’t to say that Keywords isn’t doing well. In its most recent update, the firm stated that H1 revenue was likely to be around 39% higher at just over €153m thanks to “particularly strong growth” at its Functional Testing and Game Development divisions. Indeed, trading has been so good that the company has been required to expand at a faster rate than expected, requiring additional investment (although this is likely to benefit margins in H2). Adjusted pre-tax profit should come in 15% higher than the previous year at roughly €18.4m.
Perhaps the biggest concern with Keywords is its growth-by-acquisition strategy. This is fine when everything goes smoothly but could come under scrutiny if the firm shows signs of struggling to integrate new parts of its business. For now, the company trades on a steep valuation of 31 times earnings, leaving little room for error. Interim results are out on 18 September.
A final stock that updates next month (interim results, 3 September) is semiconductor wafer producer IQE (LSE: IQE) — another former holding of mine that, regrettably, proved far less successful than Keywords.
IQE’s stock is currently the most expensive of the bunch at an eye-watering 55 times earnings. That said, analysts are forecasting a treble-digit rise in earnings per share in FY20. If the mid-cap were to achieve this, it would reduce the valuation to 21 based on today’s share price.
I think this is optimistic, particularly as IQE is currently suffering as a result of the ongoing trade war between Donald Trump and China. It’s already told investors that full-year revenue for 2019 will miss forecasts.
Perhaps unsurprising, IQE remains popular with short-sellers. Worryingly, only Kier Group, AA, Thomas Cook and Wood Group are attracting more attention. That’s not a club any company wants to be a member of.
Taking all this into account, I’d argue that IQE is the most at risk of crashing in September.