3 growth shares I’m avoiding in June

Knowing which growth shares to avoid is as important as recognising those worth buying. Paul Summers picks out three of the former.

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Now’s a great time to begin loading up on UK shares, in my opinion. However, I still need to be picky. There will be some companies that recover strongly in time. Others will struggle to bounce back at all and could even fall lower in value. Accordingly, here are three growth shares I wouldn’t touch for my portfolio before (and probably after) June.

AO World

I’ve been bearish on electrical retailer AO World (LSE: AO) for, well, years. The huge spike in the share price during 2020 did little to arrest my fears that this company would struggle to outgun rivals in what’s an incredibly competitive space. Well done to anyone who managed to play this momentum game and win.

The actual date on which full-year numbers will be revealed is still to be confirmed. Even so, I think I can safely say they won’t be good. The company has already reported that customers are cancelling warranties as the cost of living climbs. I can’t imagine a lot of people are rushing to buy white goods right now either.

The question is whether this is still to be fully reflected in the shares. Despite tumbling 27% in 2022 to date and 70% in the last 12 months, I’m not sure it is.

I’m not alone. The small-cap continues to feature in the list of most shorted stocks on the UK market.

Of course, AO could bounce hard if it reports even slightly better-than-expected trading. But that level of speculation is better suited to traders rather than Foolish investors like me.

Moonpig

Greetings card supplier Moonpig (LSE: MOON) is a second growth share I’ve long been wary of due to the hyper-competitive market in which the firm operates.

Again, my cautious stance has been vindicated. Moonpig’s share price is down 37% in 2022 and 50% since last May.

This isn’t to say there’s nothing to like here. It’s got a decent brand (boosted by that memorable jingle) and has been busy building a more diversified selection of gifts on its site. The company also upgraded its revenue target for the year from £285m to roughly £300m back in April.

However, a valuation of 20 times earnings still strikes me as rich considering the lack of ‘economic moat’ (as Warren Buffett would say). Customer loyalty levels may be above pre-pandemic levels but that may reflect the migration of shoppers online rather than anything about Moonpig specifically.

Naked Wine

Like AO World, drinks seller Naked Wine (LSE: WINE) was a huge beneficiary of the multiple UK lockdowns. Understandably, that purple patch could only last so long. Accordingly, this growth share is down 43% in 2022 and almost 60% in one year.

There’s an argument that a bottle of wine is just the sort of cheap luxury that people will treat themselves to in tough economic times. Once again, however, I’m struggling to discern any true advantage over rivals. For many people, I imagine a bottle of plonk from the nearest supermarket may suffice. I could be wrong, of course, and ominously, Naked Wine also appears on the list of most-shorted stocks too.

I can see things getting worse before they get better for the Norwich-based business.

Full-year numbers are due on 9 June.

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 no position in any of the shares mentioned. 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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