1 secret UK growth stock I’d buy now!

One of this Fool’s watchlist stocks has fallen heavily in 2021. He thinks now might be a perfect time to finally buy it.

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The last few months have been a rather uncomfortable ride for small-cap growth investors. Seen from a long-term perspective, however, this is just the sort of market behaviour that can prove profitable for those willing to buy and then sit on their hands.

I like to think I include myself in this group. And as luck would have it, the share price of one of my most coveted stocks is back down to levels not seen since the immediate aftermath of the March 2020 market crash.

Selling pressure

Set up in 2003, Farnham-based biotechnology firm Bioventix (LE: BVXP) specialises in the commercial supply of high-affinity monoclonal antibodies for applications in clinical diagnostics. In other words, these antibodies are used in blood testing machines in hospitals across the globe.

As a long-term hold, BVXP has been an absolute winner. As I type, the share price has climbed just under 1,000% in a little over eight years.

So far, however, this AIM-listed growth stock is having a poor 2021. The shares have retreated almost 24% year-to-date thanks to the brute that is Covid-19. With hospitals needing to prioritise treating the infected rather than diagnosing people for other things, it’s perhaps inevitable that profits have slipped. To compound the issue, fearful patients aren’t even reporting symptoms to doctors. 

So, the shares are cheap?

Not exactly. In fact, I imagine a fair few growth-focused investors would balk at the asking price (26 times earnings). However, I think this could prove to be a great contrarian opportunity for me for a few reasons.

First, BVXP scores extremely well on quality metrics such as returns on capital employed (ROCE) and operating margins. The former is something that star investors like Warren Buffett and Terry Smith pay a lot of attention to. Over time, it’s a company’s ability to reinvest the money it makes at a high level of return that separates the wheat from the chaff. 

Second, Bioventix is backed by some of what I consider to be the best fund managers in the business. No less than 20% of the company is held by star stock-picker Keith Ashworth-Lord in the CFP SDL UK Buffettology fund. Liontrust Investment Partners also owns a sizeable stake. Most importantly, Bioventix’s CEO Peter Harrison remains high up on the share register. Theoretically, the more willing management is to put its own cash at risk, the more likely it is to act in the interests of all shareholders.

Finally, there’s the balance sheet. With zero debt, Bioventix looks financially robust — the antithesis of many UK-listed companies right now. 

But what if Omicron sticks around?

It’s a fair question. The longer the pandemic goes on and resources are diverted elsewhere, the less near-term demand there is for Bioventix’s antibodies. Earnings could therefore continue to suffer in 2022.

Having said this, I do see Bioventix’s fall in 2021 as an opportunity to begin building a position at the very least. The shares could recover nicely if next year proves even slightly better than health and economic experts are currently predicting.

And if BVXP does stay down for longer than I expect it to, the dividend stream should make up for this. A potential 115p per share handout becomes a yield of 3.4% at the current share price.

As far as growth stocks go, I think there are a lot worse candidates 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.

Paul Summers owns shares in the CFP SDL UK Buffettology fund. The Motley Fool UK has recommended Bioventix. 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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