Two high-growth stocks I’d buy over Argo Blockchain

Argo Blockchain is one of the most popular stocks in the UK right now. But Edward Sheldon says he’d rather buy these two high-growth stocks.

| 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.

Argo Blockchain (LSE: ARB) is one of the most popular UK growth shares right now. Last week, for example, ARB was the sixth most purchased stock on Hargreaves Lansdown.

Argo Blockchain isn’t a stock I’d personally buy. I see it as too speculative in nature. Having said that, there are plenty of exciting high-growth UK stocks I would buy today. Here’s a look at two.

A high-growth UK tech stock

One UK stock I think has enormous long-term growth potential is Kainos (LSE: KNOS). It’s a leading provider of digital transformation services, which is a booming industry right now. It helps its customers (which include Netflix, Booking.com, and the UK government) with solutions in relation to cloud computing, artificial intelligence, cybersecurity and data analytics.

There are a number of reasons I’m bullish on Kainos. One is the company has real momentum right now. Just recently, Kainos said that momentum (outlined in its trading statement dated 22 January 2021) has continued and it expects results for the year ended 31 March to be at the upper end of current market consensus forecasts. The company added it believes it’s well-positioned for further growth.

Another is that the company’s financials are very impressive. Kainos has an excellent track record when it comes to generating growth. Between FY2015 and FY2020, revenue climbed from £61m to £179m. It’s also very profitable. Over the last five years, return on capital employed has averaged 43%. On top of this, the balance sheet is robust.

On the downside, Kainos does have a high valuation. Currently, the forward-looking price-to-earnings (P/E) ratio is about 40. This adds risk to the investment case. If growth slows, the stock could fall.

But I’m comfortable with this risk, given the quality of this business. I think this stock has a lot of potential in today’s digital world.

A UK 5G stock

Another high-growth stock I’d buy today is Calnex Solutions (LSE: CLX). It’s a British technology company that specialises in testing and measurement services for telecommunication (5G) networks. Its customers include BT, Ericsson, Nokia, Intel, Qualcomm, IBM, and Facebook. In the years ahead, I expect CLX to benefit as telecoms networks are expanded to handle new technologies, such as autonomous vehicles and smart-cities technology.

Calnex is growing rapidly at the moment. Between FY2018 and FY2020, revenue jumped 63% to £13.7m. For the year ended 31 March (FY2021), revenue of £17.3m is expected. It’s worth noting that in February, the group advised that revenues for FY2021 would be ahead of market expectations.

Like Kainos, this is a high-quality business. Not only is it very profitable (return on capital employed in 2020 was 36%) but it has a rock-solid balance sheet with minimal debt. In my view, it has all the ingredients to be a great long-term investment.

Of course, there are risks to the investment case. One is that a large proportion of the company’s orders are made in US dollars. So a stronger pound could hurt profits. It’s also a very small company which means its share price could be volatile.

Overall however, I think the stock offers an attractive long-term risk/reward proposition. At its current valuation (forward-looking P/E ratio of about 29), I see considerable value.

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.

Edward Sheldon owns shares in Calnex Solutions and Hargreaves Lansdown. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool UK owns shares of and has recommended Facebook and Netflix. The Motley Fool UK has recommended Hargreaves Lansdown, Intel, and Kainos and recommends the following options: long January 2023 $57 calls on Intel and short January 2023 $57 puts on Intel. 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

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

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

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

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

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »