The Motley Fool

1 of the best growth stocks to buy with £2,000

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.

Chart displaying growth
Image source: Getty Images.

The video games industry grew by around 10% year-on-year in 2020 as Covid-19 lockdowns boosted gaming demand. But it’d be a mistake to write this off as a temporary surge and expect sales to drop off.

In fact, the industry has been growing at a terrific pace over the past decade, underpinned by rampant growth in mobile gaming. And forecasts suggest the market should keep expanding strongly (Statista analysts predict compound annual growth of 9.3% between now and 2025).

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

I bought games development services provider Keywords Studios to make money from this rise. And I’m thinking of snapping up software developer Team17 Group (LSE: TM17) too. This has been one of the best growth stocks to buy in the past few years. And City analysts think the bottom line here will keep expanding robustly. Annual earnings rises of 4% and 10% are forecast for 2021 and 2022 respectively.

Team17 makes games for all of the major consoles as well as PCs and the fast-growing mobile gaming market. It has a packed IP portfolio which includes income-driving franchises such as Worms, The Escapists and Overcooked! These franchises are highly conducive to money-spinning sequels, spin-offs and similar universal extensions. Encouragingly, Team17’s product pipeline is packed with a broad array of gamer favourites right now.

M&A action

There’s another reason why getting a slice of the video games market is a good idea because the market’s ripe for consolidation. Acquisition action in the industry is heating up and, in recent days, Electronic Arts snapped up Golf Clash-maker Playdemic for a cool $1.4bn. This follows the American giant’s takeover of former London Stock Exchange share and racing game specialist Codemasters back in February.

Another UK growth stock, Sumo Group, is also in the process of being acquired by China’s Tencent. The agreed fee stands north of £900m and represents a 43% premium to the UK developer’s share price before the deal was announced. Could Team17 be the next Indie developer on the chopping block?

Another growth stock I’d buy

So Team17 owns a raft of popular products in an industry that’s growing exceptionally fast. But this, of course, doesn’t mean it’s guaranteed to deliver blockbuster shareholder returns. As CD Projekt showed with its disastrous launch of Cyberpunk 2077 last year, a new game launch can have plenty of promise but development problems can leave a massive hole in the profits column.

What’s more, at current prices, Team17 trades on a high forward price-to-earnings (P/E) ratio of almost 40 times. A high multiple like this could — just like at CD Project last year — cause a severe share price drop if development or trading problems do indeed occur.

That said, high earnings multiples are common among tech growth stocks like this. I certainly paid a pretty premium for my Keywords Studios shares. And I was happy to, given its terrific long-term profits outlook.

All things considered, I think Team17 could also be one of the best growth stocks to buy today.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Royston Wild owns shares of Keywords Studios. The Motley Fool UK has recommended Electronic Arts and Keywords Studios. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.