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Top British growth stocks for October

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We asked our freelance writers to share the top growth stocks they’d buy in October. Here’s what they chose:

Royston Wild: Games Workshop Group 

The Games Workshop Group (LSE: GAW) share price has fallen off a cliff since it struck record closing highs in September. I think this provides an excellent dip-buying opportunity.  

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Though the fantasy wargame maker still trades on an elevated valuation (it carries a forward P/E ratio above 25 times) I think its long record of earnings growth merits a premium. It’s one I was happy to pay when I bought the growth stock late last year. 

Games Workshop has an impressive history of upgrading earnings forecasts. So appetite for the firm has nosedived since it advised in mid-September that recent trading has ‘only’ been in line with forecasts. I think this is an overreaction by the market, and I fully expect rapid international expansion and moves into money-spinning media like video games to keep producing strong and sustained profits growth long into the future. 

Royston Wild owns shares in Games Workshop Group.

Rupert Hargreaves: Dunelm Group

The UK retail sector is incredibly competitive. This makes it hard for most companies to grow. However, some – like Dunelm Group (LSE: DNLM) – seem to have cracked the code.

Since 2018, the group’s earnings per share have risen by 75%, and it does not look as if the company will slow down any time soon. Dunelm has invested heavily in its e-commerce strategy, which has helped the group weather the pandemic.

As the company reinvests its pandemic windfall profits back into growth, I reckon Dunelm can continue to expand. That is why I would buy the growth stock for my portfolio.

Rupert Hargreaves does not own shares in the Dunelm Group.

Christopher Ruane:  S4 Capital

After a recent pullback in its share price, I think now could be a good time to add more S4 Capital (LSE: SFOR) to my portfolio. The digital advertising group has continued its aggressive growth strategy, announcing last month the acquisition of tech specialist Zemoga. With almost 400 staff, it is a sizeable addition to the S4 fold. The deal strengthens S4’s foothold in South America.

Fast growth brings risks, including integrating people. If S4 doesn’t do that well, it could stall profit growth.

Christopher Ruane owns shares in S4 Capital.

Andy Ross: Brooks Macdonald 

Brooks Macdonald (LSE: BRK), is a Jim Slater-style growth stock in my opinion. Its price to earnings growth (PEG) ratio is 0.5, which indicates the shares may be undervalued. A price to earnings ratio (P/E) of 13 adds further credence to that view. Top line growth has been good as well with revenue going from £81m in 2016 to £118m in 2021. Not super exciting, but consistent.  

Recent full year results were good. Group revenue of £118.2 million was up 8.8%. The underlying profit margin was up by 4.7 points to 25.9%.  

All in all, it strikes me as a top growth stock. Best of all, as a financial services firm, it’s not going to be impacted by gas prices, lorry driver shortages or many of the other problems companies are facing.  

Andy Ross does not own shares in Brooks Macdonald.

Zaven Boyrazian: Focusrite

Focusrite (LSE:TUNE) designs and develops a wide range of music production equipment and software for the audio industry. It undoubtedly caters to a niche market. But the demand for audio equipment throughout the pandemic increased as many individuals took up music production to pass the time during lockdown.

Now that lockdown is over, demand remains high as music festivals and other events make their return. Looking at the latest trading update, revenue for its 2021 fiscal year is estimated to be £173m. That’s up from £130m in 2020 and is significantly ahead of analyst expectations.

Management does employ a fairly aggressive acquisitive growth strategy that could create problems if a lousy deal is made. However, given the impressive growth, it’s a risk that I think is worth taking.

Zaven Boyrazian does not own shares in Focusrite.

Roland Head: Hikma Pharmaceuticals

FTSE 250 pharma group Hikma Pharmaceuticals (LSE: HIK) is high-quality business that’s unfairly overlooked by investors, in my view.

This £5.4bn company sells a mix of generic medicines and own-branded products. Profit margins are high.

Recent news includes the launch of a generic version of leading asthma drug Advair and the acquisition of injectables specialist Custopharm. Hikma generates margins of nearly 40% on injectables, so growth here could boost profits.

The main risk I can see is that management will overpay for acquisitions. But I don’t see any sign of this yet.

Analysts expect Hikma’s earnings to rise by 10%-15% per year between now and 2023. With the stock trading on 16 times 2021 forecast earnings, I view Hikma as a buy for growth.

Roland Head does not own shares in Hikma Pharmaceuticals.

G A Chester: The Gym Group 

With firepower of over £100m in cash and credit, The Gym Group (LSE: GYM) is uniquely positioned to take advantage of fallout from the pandemic. All its rivals are more financially constrained. 

Due to the blizzard of retail store closures, GYM is being offered dozens of high-quality sites at very attractive commercial rents. It currently expects to open 40 new gyms by the end of next year, taking its estate to around 230. 

There’s execution risk in the size and speed of the rollout, but this near-term opportunity and structural growth in the low-cost gym segment make GYM my top pick. 

G A Chester has no position in The Gym Group.

Kevin Godbold: Indivior

Pharmaceutical company Indivior (LSE: INDV) will release its third-quarter report on 28 October. Meanwhile, City analysts have pencilled in an uplift in earnings of around 60% for 2022.

Previously, July’s half-year report contained some impressive numbers for revenue and profits. The firm’s SUBLOCADE injection product drove much of the progress, and that’s used for treating opioid use disorder — Indivior specialises in treatments for addiction and serious mental illness.

There’s a positive outlook for the business and the company is engaged in a $100m share buyback programme, which the directors say appropriately balances returning capital to shareholders with maintaining our ability to execute our patient-focused strategy.”

As the business makes further progress, I think there could be more to come for shareholders here.

Kevin Godbold owns Indivior shares.

Paul Summers: Boohoo Group

Utterly biased I may be but I really do think fast-fashion giant Boohoo (LSE: BOO) offers great value at its current price. At the time of writing, the shares have tumbled nearly 50% in twelve months. For a hugely ambitious company with multiple brands (now including Debenhams). a rapidly growing international presence and 500 million potential customers, that looks very overdone. 

Yes, supply chain problems, ongoing investment in the business and the lowering of guidance on sales growth may also be troubling some. However, I regard these as either temporary setbacks or prudent moves by management that shouldn’t trouble patient holders.

Having fallen so far, I submit the risk/reward trade-off with Boohoo has never been better.

Paul Summers owns shares in Boohoo Group

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The Motley Fool UK owns shares of and has recommended Games Workshop. The Motley Fool UK has recommended Brooks Macdonald Group, Focusrite, Hikma Pharmaceuticals, The Gym Group, and boohoo group. 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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