2022 has not been a good year for growth stocks. With interest rates rising, investors have moved out of growth and into value.
For long-term investors like me, I think this weakness has created an opportunity, as I expect plenty of these stocks to rebound in the not-too-distant future. With that in mind, here’s a look at three cheap growth shares I’d buy for my portfolio today.
Growth at a reasonable price
First up is Gamma Communications (LSE: GAMA). It’s a technology company that provides communications solutions (a rapidly expanding market) to businesses across the UK and Europe.
Gamma has grown at a very healthy rate in recent years and a trading update posted last month showed that the company continues to advance. Management said it expects the group to generate revenue growth of around 10% this year. It added that it had seen no impact from the chip shortage or inflation.
But this growth doesn’t seem to be reflected in the stock’s valuation. At present, Gamma’s price-to-earnings (P/E) ratio is just 17. I think that’s quite low given the company’s track record.
A risk to consider here is that Gamma is looking to expand in Europe. This expansion may not go to plan. I think this risk is baked into the share price right now however.
A play on the EV market
Another cheap growth stock I like the look of at present is Volex (LSE: VLX). It manufactures power products for the electric vehicle (EV), healthcare, and data centre markets.
Volex’s last trading update, posted in April, was very encouraging. It said the business had continued to trade strongly, with revenue from the EV sector nearly doubling over the period. It noted that revenue for the year ended 3 April was set to exceed $605m, which would represent year-on-year growth of around 37%.
This growth is being completely ignored by the market right now though. At present, the forward-looking P/E ratio here is just 10. At that valuation Volex shares are an absolute steal, to my mind.
It’s worth noting that the business could be impacted by supply chain and cost issues going forward. This is a risk to keep an eye on. But all things considered I see this stock as a ‘buy’.
Operating in a booming market
Finally, I also like Gresham House (LSE: GHE). It’s a UK-based investment management company that specialises in alternative assets.
The alternative assets market is booming right now. With bonds producing low returns, investors are looking for new ways to invest their money. And Gresham House is riding the boom. Indeed, over the last three years, revenue has climbed from £14.5m to £70.4m (helped by acquisitions). And in a recent trading update, the group said it is enjoying a lot of momentum right now.
The stock can still be picked up at a very reasonable valuation, however. With analysts expecting the group to post earnings of 54.6p this year, the forward-looking P/E ratio is just 16.
That said, Gresham House is a small company with a market-cap of just £342m. So its share price could be volatile in the short term. I’m comfortable with this risk though. I’m looking at this growth stock as a long-term play.
