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I was spot on about these UK growth stocks. Here’s what I’d do now

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In March 2020, the UK entered Lockdown 1 and markets crashed. Sensing an opportunity to find growth stocks that should still be able to thrive, I picked out online casino operator 888 Holdings (LSE: 888) and Harry Potter publisher Bloomsbury (LSE: BMY) as two worthy candidates.

Both stocks have performed brilliantly since then. But would I buy either now?

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Worth a gamble?

Shares in 888 are up a little over 250% since I suggested they were likely to suffer less than rivals from the cancellation of sporting events. So proved to be the case, with the company seeing a huge rise in the number of people playing its games.

Today’s latest update contained some more good news with trading being “slightly ahead” of what management had been expecting.

Total revenue increased by 10% to $247m over the quarter to the end of June, primarily driven by strong growth in regulated markets including the UK, Italy and Spain. Unsurprisingly, revenue from sporting events jumped thanks to the lifting of restrictions. On the flip side, revenues from the firm’s poker and bingo offerings were down, albeit from understandably high levels in 2020. 

While nothing can be guaranteed, 888 now predicts full-year adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) will come in “slightly ahead of the prior year“.

Would I still buy now? That’s a tricky one.

Today, 888 reported that average daily revenues in the UK have been “approximately 20% lower than the year-to-date period before that” since Boris Johnson allowed shops to open on 17 May. Although not a complete surprise, I do wonder if some investors may interpret this as a sign that this growth stock’s purple patch is ending.

Then again, 888’s strategy remains appealing. News of a partnership with Sports Illustrated in the potentially very lucrative US market is encouraging. Confirmation of a sports-betting licence in Germany also bodes well. At 21 times forecast earnings before markets opened, the valuation isn’t excessive either.

On reflection, I think 888 remains a good bet in a crowded industry. Even so, I’m not sure I’d go ‘all in’ today. 

Solid hold

Since my bullish call in March 2020, shares in Bloomsbury have climbed 82%. This great performance isn’t all that hard to fathom. With nowhere to go, it was inevitable that many would reach for a book or two (or 20) to ease lockdown boredom. Again, so proved to be the case.    

Back in June, BMY reported a 14% increase in full-year revenues to just over £185m. This was far better than the wider industry’s 2% rise. Pre-tax profit also jumped 31% to £17.3m.

Positively, this momentum has continued into the new financial year. Bloomsbury already expects revenue to be “ahead” and profit to be “comfortably ahead” of market expectations.

Naturally, nothing can be guaranteed. We won’t stop reading, of course. However, the full lifting of Covid-19 restrictions does mean that people will do other things with their money and time. Personally, I’d prefer management to be a little more cagey and surprise on the upside.

No matter. Like 888, Bloomsbury looks a solid long-term hold. It has a clear strategy to build its digital offering and stacks of cash on the balance sheet. At 19 times earnings, the shares remain reasonably priced compared to other growth stocks. 

I wouldn’t necessarily back up the truck for my portfolio, but the next chapter could still be engaging so I’ll keep watching it.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Bloomsbury Publishing. 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.

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