We asked our freelance writers to share the top growth stocks they’d buy in January. Here’s what they chose:
Rupert Hargreaves: Bloomsbury Publishing
Bloomsbury Publishing (LSE: BMY) is my top British growth stock for January. A rise in the demand for reading material through the coronavirus pandemic has generated windfall profits for the company over the past two years.
Bloomsbury aims to capitalise on this newfound love of reading in the years ahead. Analysts believe this will translate into earnings growth of 11% this year and 10% in 2023.
Of course, this growth is not guaranteed. Rising inflation could cause consumers to cut back on spending on non-essential items like books. Despite this headwind, I would buy the stock for my portfolio.
Rupert Hargreaves does not own shares in Bloomsbury Publishing.
Zaven Boyrazian: Frontier Developments
Frontier Developments (LSE:FDEV) is a game development studio and publishing house. It’s responsible for a popular collection of titles, including Elite Dangerous and Jurassic World Evolution.
The stock took a significant hit in 2021 after management lowered its revenue guidance due to underperforming sales. However, its first entry of the Formula 1 franchise is coming out later this year, along with multiple other projects through its publishing arm.
Personally, I think the lineup of new releases could drastically boost sales again. And with further franchise titles coming out in 2023, including Warhammer, the stock looks like it has excellent growth potential in my mind.
Zaven Boyrazian owns shares in Frontier Developments.
Royston Wild: B&M European Value Retail
City analysts don’t expect B&M European Value Retail (LSE: BME) to record ripping earnings growth in the near term. In fact, they’re expecting profits to reverse over the next 12 months or so as supply chain costs balloon. It’s my opinion, however, that earnings could actually surprise positively as shoppers seek out bargains in this high-inflationary environment. Indeed, B&M’s trading statement in early January showed profits exceeding analyst estimates.
This FTSE 100 share is unlikely to be a flash in the pan. Discount grocers Aldi and Lidl have grown rapidly over the past decade as consumers prioritise value. Encouragingly, B&M is expanding rapidly to make the most of this opportunity, too.
Royston Wild does not own shares in B&M European Value Retail.
G A Chester: Gym Group
Low-cost operator Gym Group (LSE: GYM) was expanding and delivering strong revenue and cash-flow growth before the pandemic. Inevitably, government-mandated shutdowns had a negative impact on the business.
There remains some risk from coronavirus, but I think Gym is cheaply valued on its pre-pandemic cash flows. Furthermore, it’s well funded to exploit an unprecedented growth opportunity coming out of the pandemic.
Due to large numbers of store closures in UK towns and cities, the company has been offered dozens of high-quality sites on attractive terms. Management has never seen the property market so favourable and is taking full advantage to accelerate expansion.
G A Chester has no position in Gym Group.
Ed Sheldon: Sage
My top British growth stock for January is Sage (LSE: SGE). It’s a leading provider of cloud-based accounting and payroll solutions with a focus on small and medium-sized businesses.
I’m bullish on Sage for a couple of reasons. Firstly, I expect the company to benefit from the ongoing global economic recovery. Better economic conditions should lead to higher demand for the company’s accounting solutions.
Secondly, the valuation seems very reasonable. Currently, Sage sports a forward-looking P/E ratio of around 32. By contrast, US rival Intuit currently trades at around 50 times this year’s forecast earnings.
One risk to consider here is competition from Intuit and other players such as Xero. I think this risk is baked into the valuation, however.
Edward Sheldon owns shares in Sage and Xero.
Roland Head: Electrocomponents
Profits at industrial and electronic parts supplier Electrocomponents (LSE: ECM) have risen by an average of 40% per year since 2016.
According to CEO Lindsley Ruth, trading was strong during the third quarter. He now expects results for the year to 31 March to be ahead of broker forecasts. My sums suggest we could see earnings growth in excess of 40% in 2021/22.
The main risk I can see is that with the stock trading on 26 times forecast earnings, any disappointment could cause the shares to slide. However, I expect further growth.
Roland Head does not own shares of Electrocomponents.
Christopher Ruane: S4 Capital
After strong growth for most of 2021, digital ad group S4 Capital (LSE: SFOR) fell in the final quarter. It had a weak start to 2022. Like S4 boss Sir Martin Sorrell, I have increased my holding this month.
One risk is the cost of integrating acquisitions eating into profits. But the company continues to grow aggressively, acquiring another US agency this month. For 2022 it is targeting 25% growth in both gross profit and net revenue. S4 is set to benefit from growing spend on digital advertising.
Christopher Ruane owns shares in S4 Capital.
Paul Summers: Biotech Growth Trust
Last year was pretty awful for shareholders of minnow-focused Biotech Growth Trust (LSE: BIOG). As a patient, long-term investor, however, I’ve been taking this period of selling pressure as an opportunity to load up.
Whether 2021 will see a return to form is hard to say. On an optimistic note, directors believe the valuations given to small-cap stocks in the sector are now “very compelling”. A rise in merger and acquisition activity, the passing of price legislation in the US and increased regulatory approval of drugs (held up by the pandemic) could also spark a recovery.
Paul Summers owns shares in Biotech Growth Trust
Harshil Patel: Alpha FX
My top British growth stock for January is financial solutions company Alpha FX (LSE:AFX). It’s a founder-led British business focused on two areas: foreign exchange risk management and alternative banking.
Trading has been strong, and the company has proven sales and profit growth over several years. I like that it has a diversified client base and client numbers are also growing.
I’d say not only is Alpha FX a growth stock, but it’s also a good quality business with a double-digit profit margin.
With a market capitalisation of under £1bn, I reckon it has much room to grow further.
Harshil Patel does not own shares in Alpha FX.
The Motley Fool UK has recommended Alpha FX, B&M European Value, Bloomsbury Publishing, Frontier Developments, Sage Group, and The Gym 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.