Many investors like to buy low-priced stocks. That’s because, with these stocks, we get a lot of shares for our money.
Here, I’m going to highlight two UK growth stocks that currently trade under £2 and that I’d be happy to buy for my own portfolio today.
A top stock under £2
The first stock that I want to highlight is Calnex Solutions (LSE: CLX). It’s a leading provider of testing equipment and services to the telecommunications industry.
The reason I like CLX is that demand for telecommunications testing services is likely to be high in the years ahead as the fifth generation of mobile network technology (5G) is rolled out. According to Grand View Research, the global 5G testing equipment market is set to grow by around 9% per year between 2020 and 2027. Calnex’s solutions are designed to help customers (such as BT and AT&T) test the performance of critical telecom network infrastructure. So it appears well placed to benefit from the rollout of 5G technology.
In October, Calnex posted a good trading update for the six months to 30 September. In this update, it advised that performance in the first half of its financial year had been strong and that it expects this trend to continue through H2, driven by the rise in demand for 5G and cloud computing. It added that it expects revenue and profits for the full year to be “materially ahead” of its previous expectations. This update – which pushed the share price up to new all-time highs – suggests the company has a lot of momentum right now.
One risk to monitor here is the ongoing semiconductor shortage. To date, Calnex hasn’t been materially impacted by the shortage. However, it could still be affected. Another risk is exchange rate movements. Calnex generates a large chunk of its revenues in US dollars so a strengthening pound could hit sales.
I’m comfortable with the risks though. In my view, this company has the potential to generate a lot of growth in the years ahead. The stock currently trades on a P/E ratio of around 30, which I think is very reasonable given the company’s growth track record (three-year revenue growth of 114%) and future potential.
Too cheap?
Another stock trading under £2 I like the look of right now is online fashion retailer Boohoo (LSE: BOO), which owns a number of well-known brands including PrettyLittleThing and Debenhams.
Boohoo shares have taken a big hit recently. One reason for this is that higher costs and supply chain bottlenecks are hitting profits. Another is concern over competition from rivals such as Chinese e-commerce powerhouse Shein.
There’s no doubt that Boohoo does face some challenges in the near term. I think higher costs (which are hitting almost every company in the retail industry) could persist for a while.
That said, I think the share price fall here is overdone. Currently, Boohoo sports a forward-looking P/E ratio of just 21. That’s very low, in my opinion, considering that revenue is projected to rise 22% this financial year (ending 28 February 2022) and 24% next year.
All things considered, I think this sub-£2 stock offers a lot of value right now.
