Plenty of UK growth shares are delivering fantastic returns for investors at the moment. Just look at ASOS. Over the last three months, its share price is up about 70%.
Today, I’m going to highlight two UK growth stocks I’d be happy to invest £1,000 in today. I believe both have the potential to deliver strong returns to investors over the medium-to-long term.
Social media champion
One UK growth stock I’d buy right now is Boohoo (LSE: BOO). Its share price has taken a hit recently on the back of reports about poor working conditions at clothing factories linked to the company. I expect Boohoo shares to bounce back though.
One reason I’m confident Boohoo will keep growing is its social media presence. On Instagram, Boohoo has 6.7m followers, while its fast-growing brand PrettyLittleThing has 12.5m. Those figures are up from 6.1m and 11.4m last October. This suggests interest in the brands is not declining.
Another reason I’m confident about Boohoo is that top-level insiders have been loading up on shares recently. In July, Boohoo co-founder and executive chairman Mahmud Kamani spent £10.7m on stock while group co-founder and executive director Carol Kane spent £4.3m on stock. Insiders only buy stock for one reason – they expect it to go up.
Boohoo shares currently trade on a forward-looking P/E ratio of about 41. That’s expensive. But this company is growing quickly. I’d buy the stock today while it’s well below its 2020 highs.
A top UK growth stock
Another UK growth share I’d buy today is Rightmove (LSE: RMV). It operates the largest property sales website in the UK.
There are a number of reasons I like RMV. Firstly, its brand gives it a strong competitive advantage. 2019 was the ninth consecutive year Google reported that more people start their UK home search typing in ‘Rightmove’ rather than ‘Property.’
Secondly, it’s the leader in its field by a wide margin. In its half-year results, Rightmove said it had 940,000 UK residential properties advertised on its site. That’s 50% more than any other UK property website. Additionally, Rightmove is a ridiculously profitable company. Over the last five years, return on capital employed has averaged 734%.
There’s a great quote from Warren Buffett’s business partner, Charlie Munger, that comes to mind: “If the business earns six percent on capital over forty years and you hold it for that forty years, you’re not going to make much different than a six percent return. Conversely, if a business earns eighteen percent on capital over twenty or thirty years, even if you pay an expensive looking price, you’ll end up with one hell of a result.”
Rightmove was disrupted by Covid-19 lockdowns with activity on its site declining. However, activity has rebounded recently. In its half-year results, the company said it had recorded 65 days beating its previous traffic record set on 19 February. Moreover, between 1 June and 31 July, demand for sales properties has been 50% higher than the same period in 2019. It appears Rightmove has its mojo back.
Of course, there are risks here. A second wave could derail the group’s progress. However, with the stock still well below its 2020 highs, and trading on a P/E of 32 using next year’s earnings forecast, I see the risk/reward proposition as attractive. I’d buy this UK growth stock today.
