Looking at the market on the hunt for growth stocks, I continue to get excited about the prospects for some UK shares.
Here are three high growth shares I think could soar in the coming months.
Digital advertising powerhouse
Digital advertising agency S4 Capital (LSE: SFOR) has an excellent growth record so far. In its preliminary results last month, S4 reported that billings were up 43.4% versus the prior year. Some of that was due to acquisitions, a growth rocket for the company that I expect to continue. But even like-for-like revenue was up an impressive 19.6%.
The growth story here is based on a couple of factors, in my opinion. One is the migration of advertising budgets online. That has accelerated further during the pandemic. A second is an offering that combines production of the sort seen in the traditional advertising agency model with data and programmatic offerings well suited to the company’s digital focus.
With a talented set of people and a client list boasting the likes of Google and BMW, I think S4’s growth could continue apace. But like all growth stocks, there are risks. These include the risk of overpaying for acquisitions. These are mostly funded half in shares, diluting shareholders. So, if they are less beneficial than hoped, that could weigh on the share price.
High growth retail
Another company whose growth rate in recent years has impressed me is B&M (LSE: BME). Best known for its eponymous discount stores in the UK, the company grew revenue by 19.5% according to its most recent full-year results. I expect the forthcoming results to be even stronger, as the company did a roaring trade during lockdown.
I continue to see future growth prospects for the company. That is due to more customer awareness of the B&M offering, a competitive pricing structure, and a proven format. Its price-to-earnings multiple of 29 would look a bit pricy to me for most retailers. But if B&M sustains its strong growth, I think its shares could keep increasing too.
Risks include the company’s underexposure to online retail at a time when the share of customer spending online is growing, as well as strong promotional activity by competitors, which could hurt profits.
UK growth stocks and Warren Buffett principles
While B&M is a well known name on the high street, I also spy growth potential in some companies that have less name recognition.
One such firm is Judges Scientific, whose shares have put on 17% over the past year. The specialist company owns a variety of niche scientific instrument makers. I think such businesses have some of the characteristics Warren Buffett finds attractive, such as pricing power and a range of products that is hard to replicate. That is why I include Judges on my list of growth stocks.
The pandemic hit the company’s results, but over the past five years the average annual growth rate was 6.7%. Ordinary dividends have grown by a minimum of 10% annually in recent years.
Risks include the impact of lockdowns on customers such as university labs, whose temporary closure can lead to lower demand for equipment sales and servicing. The company’s structure as a geographically dispersed group of small companies also heightens the risk of weakened central management, in my view, which could reduce cost control efficiencies.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. christopherruane owns shares of S4 Capital plc. The Motley Fool UK owns shares of and has recommended Alphabet (A shares) and Alphabet (C shares). The Motley Fool UK has recommended B&M European Value and Judges Scientific. 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.