There are a few criteria that I look for when picking growth stocks. Firstly, I like to see investment in a company. Secondly, there must be a history of growth, as well as strong future prospects. I feel that the following two UK shares tick these boxes and that’s why I’d buy them both today.
A FTSE 250 stock hit hard by the pandemic
The first growth stock that piques my interest is On the Beach (LSE: OTB). In many ways, this may seem like an odd choice. The travel retailer has struggled during the pandemic, due to the lack of customers. This was reflected in the recent 2021 first-half trading update in which the firm revealed losses before tax of £21.6m. Evidently, this is a major problem and evidence of the economic pain caused by the pandemic.
Nonetheless, I remain optimistic. Indeed, On the Beach is in a strong financial position, with very limited debt and cash of £30m. Currently, monthly cash burn is only around £2m, significantly lower than the vast majority of other travel companies. This is partially because On the Beach keeps customer prepayments in a trust account, which is not used for working capital. This has helped with customer refunds, alongside the financial stability of the company and its reputation.
Moving forward, I believe that On the Beach can gain market share, making it a potentially great growth stock. It has already invested in its core platform capabilities, and it is hoped that this can help it take advantage of opportunities post-pandemic. As such, I feel that it can return to profitability soon, and hopefully, strong growth is also on the cards. Of course, any further Covid disruptions (or future non-Covid pandemics) could seriously dent the business. Nonetheless, I am very tempted to add this stock to my portfolio.
This growth stock also pays a strong dividend
Airtel Africa (LSE: AAF) is a telecommunications firm that operates in 14 different African countries. It has a strong track record of profits growth. Indeed, in 2020, profits were over $1.1bn. This was 25% higher than the previous year and was enabled by customer growth of 11.9%.
I am also of the opinion that these profits can grow further. Unlike western Europe and the US, where the telecoms market is very mature, the African telecoms market is still in its infancy. I think there will be opportunities to capitalise on this growing market.
Unlike a number of other growth stocks, Airtel Africa also pays a dividend, yielding around 4%. Sometimes this can indicate a lack of investment in the company, yet in this case, the dividend looks well supported by the rising profits. This was a major reason why I decided to buy the stock, and I am currently very willing to add more shares to my portfolio.
The one problem that does have to be pointed out is the large debt pile. Although the company has endeavoured to cut debt these past few years, net debt still stands at $3.53bn. This means that the business will need to reduce its debt over the next few years, and this may hinder investment in other areas.
Stuart Blair owns shares in Airtel Africa. The Motley Fool UK has recommended On The Beach. 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.