A dirt-cheap UK growth share I’d buy for November!

Investor demand for this UK growth share has cooled in recent weeks. Here’s why I think this could prove to be a brilliant dip-buying opportunity.

| More on:

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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The global automotive industry is facing severe problems at the moment. Supply chain woes are causing massive parts shortages, such as semiconductors, issues that are significantly harming production of new vehicles.

It’s a problem that’s clouding the outlook of many car retailers, but not all. Reduced vehicle output is playing into the hands of second-hand specialist Motorpoint Group (LSE: MOTR), for one.

A shortage of available new vehicles is pushing prices of pre-owned vehicles through the roof. According to the AA, prices are rising at “unprecedented rates,” with demand for nearly-new cars — a segment which Motorpoint specialises in — increasing particularly strongly.  

AA data shows that prices of Britain’s most popular second-hand cars have leapt 57% between 2019 and today. The impact the shortage of new vehicles is having on the pre-owned market could remain to continue boosting revenues at Motorpoint for some time longer too. Mercedes-Benz chief Ola Källenius has recently said that the semiconductor shortage smacking new vehicle production could even drag into 2023.

Sales are soaring

The strength of the pre-owned market is reflected in Motorpoint’s recent stream of market updates. In early October’s latest statement, the company said sales had rocketed 57% in the six months to September.

Like retailers of new vehicles, Motorpoint has also been hit by short supplies of stock. But the business has taken steps to address this and expanded its core market of vehicles below three years old to include models that are aged up to four.

This recent strong trading helped Motorpoint’s share price jump earlier in October. But the business has since retraced and lost all of those gains. The retailer’s now 18% more expensive than it was a year ago, and I think the release of half-year financials on 25 November will push the firm’s share price higher again.

A growth share on my radar

I think the company’s current valuation leaves plenty of space for fresh gains. At a price of 342p per share, Motorpoint carries a price-to-earnings growth (PEG) ratio of just 0.2. A reading below 1 suggests a UK share could be undervalued, or so investing theory goes.

Buying Motorpoint shares isn’t without risk, of course. As well as the dangers of stock shortages, a period of significant inflationary pressure could also dent sales as broader consumer spending comes under the cosh.

It’s my opinion though, these threats are more than reflected in the company’s ultra-low PEG ratio. I don’t just like Motorpoint because of the bright outlook for used-car prices. I like its great track record in growing sales far above those of the broader market. And I’m encouraged by its plans to keep expanding (it recently sealed the deal on a new site in Milton Keynes).

City analysts think Motorpoint’s earnings will rise 86% and 45% in the years to March 2022 and 2023 respectively. I think it could be one of the most attractive growth shares out there.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Motorpoint. 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.

More on Investing Articles

Investing Articles

Could Premier African Minerals be a millionaire-maker penny stock?

Shares of Premier African Minerals (LSE:PREM) have crashed over the past year. Is this a golden opportunity for me to…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Which FTSE defence stock should I buy? Here’s what the charts say

FTSE shares like BAE Systems have been flying higher over the last couple of years as the geopolitical situation has…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

Here’s why investors should consider buying Scottish Mortgage shares today

After a steady rise in recent times, this Fool thinks Scottish Mortgage shares could be worth considering. Here he explains…

Read more »

Young black man looking at phone while on the London Overground
Growth Shares

This FTSE 250 stock keeps blowing broker forecasts out of the water

Jon Smith considers the ever-increasing share price targets for a FTSE 250 stock that has risen by 120% in the…

Read more »

A mixed ethnicity couple shopping for food in a supermarket
Investing Articles

Marks and Spencer shares could rise 29%, according to this broker

Marks and Spencer shares currently sport a P/E ratio of just 10, and one well-known City broker believes the company…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 of the best FTSE 100 beginner stocks to consider buying

The Footsie offers people just beginning their investment journey some of the best stocks to buy. Here are two to…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Here’s why the Aviva share price suddenly dived

The Aviva share price suddenly dropped by over 6% the other day. But there's a simple explanation for this sudden…

Read more »

Long-term vs short-term investing concept on a staircase
Investing Articles

With no savings, I’d listen to Warren Buffett to aim for long-term wealth

Warren Buffett looks for "1-foot bars" to step over, not "7-foot bars" to jump. Stephen Wright looks at what this…

Read more »