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These growth shares have tumbled over 40%! Time to buy?

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The skittish mood among UK investors in recent weeks has led to many growth stocks tumbling in value. This morning, I’m going to pick out two that were already on my share watchlist as potential buys at the right price. Has that time arrived?

Victorian Plumbing

I took an initial look at Victorian Plumbing (LSE: VIC) back in June. At the time, the UK’s leading online retailer of bathroom products and accessories had just enjoyed a successful IPO. The shares had jumped from 262p to as high as 341p. Today, the very same stock trades 44% below that peak. What’s going on?

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Well, as I noted back then, the company was coming to market during a DIY and home improvement boom. Many of us had used the multiple UK lockdowns to get our properties in order and/or prepare for more home-working in the future.

Unfortunately, last week’s trading update for the year to 30 September suggested this purple patch might be coming to an end. Despite growing revenue by 29% over the financial year, news of “more subdued market conditions” as Covid restrictions were lifted didn’t impress investors. This is despite the company emphasising that margins “remained strong and EBITDA for FY21 would likely be “ahead of market expectations“.

Jitters over global supply chains may also have contributed. Having said this, VIC didn’t help itself here. Reflecting that it had been “proactive” on this issue but providing very little in the way of detail wasn’t really satisfactory.

Even so, the market’s treatment of Victorian Plumbing has been a little too brutal, in my view. I guess this is what happens when a highly-rated growth stock doesn’t execute to perfection.

As things stand, VIC stock trades on 21 times earnings. With global headwinds unlikely to disappear anytime soon, I’m inclined to think that the valuation may still have further to drop. As such, I’m keeping my powder dry. It definitely won’t lose its place on my watchlist though.

Luceco

If Victorian Plumbing’s valuation still appears a little too rich, lighting specialist Luceco (LSE: LUCE) is looking far more palatable. Right now, the near-£500m cap company’s stock changes hands for a little over 15 times earnings. 

Sadly, my bullish call on LUCE just over one month ago wasn’t shared by the market. Despite reporting very decent numbers and raising the interim dividend by 73%, investors have elected to abandon the stock en masse. All told, LUCE shares were down 41% before markets opened today since hitting an all-time high in early September. Then again, they’re still up 41% in the last 12 months. 

In my defence, I questioned whether the lack of buying activity on the day did suggest investors were concerned by the firm’s comments relating to significant cost inflation and supply chain setbacks. Even so, I underestimated just how great this concern was. Some director selling hasn’t helped matters.

Of course, short-term setbacks may be regarded as opportunities for long-term investors such as myself. This remains a quality business, in my opinion. Bar the odd blip, margins and returns on capital have been consistently great. The aforementioned cash returns should also be sufficient compensation while investors await a recovery. How long that recovery takes is debatable, of course. 

Far from switching off from this growth stock, I’d be comfortable starting to build a position today.

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