These UK growth stocks have crashed! Time to buy?

Paul Summers highlights two out-of-favour UK growth stocks that could prove to be great contrarian buys, in time.

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As a Fool focused on increasing my wealth over the long term, I’m partial to buying UK growth stocks that others with shorter time horizons are dumping en masse. Here are two examples grabbing my attention.

“Slower than expected” sales

At the time of writing, the share price of video game developer Frontier Developments (LSE: DEV) has tumbled almost 43% in 2021 to date. This isn’t a complete surprise.

Back on 22 November, Frontier announced that PC sales of its latest release — Jurassic World Evolution 2 — had been “slower than expected“, due to a “crowded release window“. That’s despite generally favourable reviews from critics and gamers alike.

Unfortunately, copies of another one of the firm’s titles — Elite Dangerous: Odyssey — haven’t been flying off the shelves either. As a result, Frontier is revising its guidance on full-year revenue to between £100m and £130m. That’s a significant reduction on the £130m-£150m once hoped for. A lot will depend on how the company fares over the run-up to Christmas, hence why investors are understandably skittish.

Opportunity knocks?

Could this be a great opportunity? Possibly. As the company itself notes, the arrival of the new Jurassic World Dominion movie next year could generate better demand for its latest release. There are also Frontier’s first F1 management and Warhammer games to look forward to. Demand for video games (and, consequently, video gaming stocks) could also return if further restrictions are brought in to tackle the Omicron variant.   

My issue with Frontier, however, remains its valuation. A P/E is 47 isn’t excessive compared to some tech-related shares. It is, however, very rich for a stock that depends on a small number of titles performing as expected.

Without a compelling margin of safety, Frontier stays on my watchlist for now. That said, further slippage in the share price could force my hand.

Another growth stock disappoints

Online bathroom-related products seller Victorian Plumbing (LSE: VIC) is another growth stock that’s crashing in 2021. Since hitting a high of almost 342p back in June, its value is now down over 70%. 

A good proportion of this fall came following last Thursday’s full-year numbers. Despite posting a 29% rise in revenue to just under £269m, investors were shaken by the company’s rather subdued outlook on trading as the UK home improvement/DIY boom shows signs of having run its course. This was a risk I raised not long after the firm’s IPO.

Does a slowdown in growth justify such an awful share price collapse? I’m not so sure. In fact, Victorian Plumbing shares could offer great value now, even if gross margins fall, as expected.

Barriers to entry aren’t exactly high, but Victorian should continue growing its already significant presence through a hefty marketing budget. Other attractions include a solid balance sheet and a strategy to target more trade customers going forward. Founder and CEO Mark Radcliffe also remains a major shareholder. This should make him even more determined to see the company recover. 

Like Frontier, Victorian Plumbing remains on my watchlist. However, a lot of bad news does look to be priced in. A bounce could be on the way if trading proves even slightly better than a now very pessimistic market is predicting.

For now, I’m letting the dust settle.

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.

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