With a good few decades of investing ahead of me, I’m always on the lookout for great growth stocks to buy. Even better if their share prices are going through a period of temporary weakness.
With this in mind, here are three quality companies now trading near 52-week lows.
Late in January, one-time market darling Fevertree Drinks (LSE: FEVR) announced that cost headwinds would be more significant than expected, meaning that margins at the mixer specialist are likely to “remain broadly flat in 2022“.
This announcement succeeded in taking away most of the gains made in the second half of 2021. Fevertree’s share price now stands close to its 52-week low. So is now the time to buy the stock?
Well, a valuation of almost 49 times forecast earnings suggests not. Anything this high implies/demands a company should deliver perfectly on its strategy. That’s not easy considering the ‘interesting’ economic outlook right now.
Then again, this is not a stock that’s ever likely to trade at a bargain price. Prior to the pandemic, returns on capital — a key metric for star fund manager Terry Smith — were seriously good. Fevertree’s finances also look solid with hardly any debt on the balance sheet. There’s lots of ‘white space’ left for the company to grow into and it already possesses a great brand.
I think there’s a good chance of this company recovering strongly, in time. For now however, it stays on my watchlist.
IT solutions provider Softcat (LSE: SCT) is next up. The FTSE 250 member’s share price is also getting close to its 52-week low (1,419p, set last April). Considering its stellar track record, this selling pressure grabs my attention.
Like Fevertree, Softcat has a history of generating seriously good returns on the money it invests in the business. It’s clearly benefited hugely from the increased demand for support from clients over the pandemic too.
That’s not to say Softcat is without risk. Margins, while decent for its industry, are average relative to the rest of the market. The stock also trades on a P/E of 33. That’s pricey, considering that earnings aren’t expected to grow much at all this year.
Given that the stock could fall further if the rotation into value stocks continues in 2022, Softcat only makes it to my watchlist, for now.
A final growth share that’s let off steam has been the fantasy figurine-maker Games Workshop (LSE: GAW). The shares are now down over 20% year-to-date and only slightly above the 52-week low. Product release delays and increasing costs are partly to blame.
Of the three mentioned here, this is the stock I’d be most likely to buy today. While fixating on valuation is never a good idea, a forward P/E of 22 looks very reasonable, considering its dominance of this niche market. Again, its finances are robust compared to many other companies.
Yes, there’s a risk the share price could dip lower if margins continue to be squeezed. As such, it may pay for me to buy in tranches if I end up pulling the trigger.
There was a time when Games Workshop was knocking on the door of the FTSE 100. Assuming it is able to successfully push its Warhammer franchise over the next few years via games and films, I’m confident this could still happen.