The Motley Fool

I was spot on about this UK growth stock. Here’s what I’d do now

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.

A happy dog wearing a Foolish jester cap.
Image source: Getty Images

Shares in veterinary services provider CVS Group (LSE: CVSG) were rising again this morning following its latest update on trading. Had I bought this growth stock when last writing about it in September, I’d be sitting on a gain of 30%. As much as I’m focused on long-term returns, that’s hardly a bad result over just four months!

Top growth stock

Its total sales grew by 9.4% to a little under £246m over the six months to the end of December. Like-for-like sales also increased by 7.8%. The latter may be slightly lower than over the same period in 2019 but I need to take into account just how bad 2020 was for most businesses.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

According to CVS, this resilient performance was the result of growth in its main Practices division, coupled with higher demand at its online pharmacy and retail arm (Animed). As one might expect given the clamour for animal companions in 2020, the AIM-listed company saw an increase in new client registrations over the period.  Membership numbers of its Healthy Pet Club preventative medicine scheme also grew by 3.6% to hit 430,000. 

In other news, the company’s not-insignificant employment costs fell slightly, from 51% of total sales to 48.9%. The vet vacancy rate also declined.

To round things off, CVS Group was active on the acquisition front, purchasing four practices over the six-month period. I think this should only help to further cement its status as one of the leading veterinary services providers around. It now has more than 480 surgeries in the UK, Netherlands and Republic of Ireland. 

What now?

As far as trading is concerned, I suspect recent momentum will be sustained. All of CVS’s practices remain open, in line with guidance issued at the beginning of the third UK lockdown. Importantly, the company is now able to provide essential services relating to animal welfare rather than just emergency work.

Perhaps the biggest reason for continuing to be bullish on this growth stock, however, is that I simply can’t see the trend for pet ownership reversing. I also feel we’re unlikely to curtail spending on our furry friends, regardless of how the UK economy is performing. 

All told, the long-term prospects seem too good to me to bank profits this early. Even so, I have to be aware of the risks involved.

Volatility ahead? 

One thing that might lead the share price to lose steam is a good, old-fashioned bout of profit-taking. This wouldn’t feel unreasonable. After all, the value of CVS has more than doubled since the dark days of March. A forecast price-to-earnings (P/E) ratio of 27 suggests a lot of good news is already priced in. 

CVS certainly has form when it comes to violent, and protracted, share price swings. Between November 2017 and January 2019, the valuation of the company plunged as it struggled to recruit vets in light of the Brexit referendum outcome. While our departure from the EU might be one-off event, this doesn’t negate the fact that such falls are possible.

So, I wouldn’t sell had I bought a few months back. But while I do still think the shares could reward those with long investing horizons, I wouldn’t buy this growth stock today. I’m cautious over how much further the price could go in 2021 alone. As always, being sufficiently diversified elsewhere is key, regardless of how encouraging the outlook may be.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Paul Summers has no position in any of the 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.