I believe owning growth shares is a great way to increase my wealth over the long term. With that in mind, here are two UK shares to buy now. I’d buy both based on their growth potential over the medium to long term.
Fevertree Drinks (LSE: FEVR) is somewhat of a UK stock market darling. Since 2014, profit has grown from around £1.3m to £59m for 2019. Unfortunately, analysts forecast the group will report a decline in 2020, but this is expected to reverse in 2021.
Of course, these are just forecasts at this stage. Projections like this should never be relied upon for investment decisions because they’re subject to change.
The company also faces multiple risks such as competition from deep-pocketed US soft drink giants, regulations and higher costs. Profit margins have contracted by around 20% since 2017 due to rising costs and, if this trend continues, it’ll impact the group’s bottom line.
Nevertheless, as one of the UK’s leading premium mixer drinks groups with operations around the world, I think Fevertree’s potential is tremendous. When the pandemic’s headwinds have receded, I believe the company can build on its brand awareness developed over the past few years to drive sales growth globally.
That’s why I think this is one of the best shares to buy now and would acquire it for my portfolio of UK shares today.
Best shares to buy now
Another growth share I’d buy today is RWS Holdings (LSE: RWS). Like Fevertree, this company provides a unique service and products, which give it competitive advantages over its peers.
RWS provides intellectual property support services in life sciences translations and linguistic validation. This is a relatively specialist market, where reputation counts for everything. RWS has developed a niche for itself, which has helped drive its growth over the past five years. Since 2015, earnings have grown at a compound annual rate of nearly 25%. That puts it in the ranks of the fastest-growing UK shares.
And the City is expecting this trend to continue. Analysts believe the group has the potential to more than double net income by 2022. However, as noted above, these are only forecasts and shouldn’t be relied upon for investment decisions.
Despite its growth potential, the company is exposed to some significant risks. As I highlighted above, RWS has developed a strong reputation in its industry, but this isn’t guaranteed forever. If the firm’s reputation is damaged, customers might go elsewhere.
What’s more, like Fevertree, the company has also seen costs increase steadily over the past few years. Its operating profit margin has fallen from 22% in 2015 to 17.3% for 2020. This suggests the business is having to work harder to maintain and acquire new customers. If this trend continues, growth could suffer.
Still, despite these headwinds, I’d buy RWS for my portfolio of UK shares today as I’m incredibly encouraged by its growth track record and competitive advantages.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Fevertree Drinks. 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.