2 strong growth stocks with falling share prices

Andy Ross likes the idea of picking up growth stocks at a lower price, and these two UK-listed shares have fallen.

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

One of the ways I’d look to outperform the market is by picking up growth stocks with good long-term prospects at a reasonable price, or trading more cheaply then was the case in the past. Here I look at two UK-listed shares that could see serious share price appreciation in the coming year and beyond.

A mining growth stock

The first is South African gold miner Pan African Resources (LSE: PAF). Over six months, its share price is down around 22%. However, on a 12-month view, the shares are up more like 40%.

Over the same time frame, the share price of fellow gold miner Centamin has also fallen heavily. The gold price has also fallen from £1,480 per ounce to £1,286 at the time of writing. 

I like that Pan African Resources is an established miner, which for me makes it a bit less risky than other listed natural resources explorers and miners. The miner pays a dividend and has debt under control, which I see as positives.

It was hit by the pandemic, so in that light, the performance has been good. The management has said it’s on track to deliver on its full-year production guidance of around 190,000 ounces of gold.

On the downside, it’s always at the mercy of the gold price, which is clearly beyond its control. It also could face taxes from the South African government. There might be particular pressure on mines following the economic impact of the pandemic.

I’d like to see the share return to over 24p per share this year. The shares currently change hands at around 17p to 18p. The 12-month high, useful as a reference, is 28p. A rise in the gold price or inflation concerns could both be realistic triggers for this happening. For me, it’s a growth stock I’ll be keeping an eye on for my portfolio. 

A falling share price

The share price of software group First Derivatives (LSE: FDP) has recovered recently as the overall market has done well. But looking over six months, the shares are down 21%. Over one year they’re up 27%.

The recent dip then could be an opportunity for investors. The group has identified digital marketing, automotive, energy and manufacturing as markets that are particularly attractive, moving it away from its historic focus just on the banking and finance markets.

Risk and opportunity

The shares do still trade on a price-to-earnings (P/E) ratio of 40 times, so future growth needs to be strong. Otherwise these shares would clearly be very expensive. In a difficult year last year, results weren’t impressive. Interim results for the six months ended 31 August 2020, showed revenue only grew 3%. That’s why I’ll probably not be adding First Derivatives to my portfolio. 

However, if the shares could return to their year high, it would imply a 26% upside to the current share price, which I think would be a very credible return. A rising market, as well as an improved financial performance, which would bring down the P/E, could both be catalysts for this. 

Clearly, some growth stocks that are cheaper than they were. If they can put in strong financial growth in future results, then with a lower P/E, the price-to-earnings growth ratio could be attractive. According to Jim Slater, any PEG ratio below 0.7 could indicate an undervalued growth share, so I’ll keep my eyes open.

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.

Andy Ross owns no share 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

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »