3 cheap growth stocks to buy today

A lot of UK growth stocks currently look very cheap. Here are three bargains Edward Sheldon would snap up today.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

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.

Edward Sheldon has positions in Gamma Communications and Volex. The Motley Fool UK has recommended Gamma Communications. 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.

More on Investing Articles

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Dividend Shares

How I’d try to ironclad my second income before interest rates fall

Jon Smith explains a couple of tactics he's looking to implement in his dividend portfolio to try and protect his…

Read more »

Investing Articles

The FTSE 100 still looks cheap to me. But don’t just take my word for it!

The FTSE 100 (INDEXFTSE:UKX) has increased 7.5% since the start of 2024. But I think there’s evidence to suggest that…

Read more »

Investing Articles

What should the Vodafone share price be? Here are 3 possible answers

Our writer uses a number of popular financial measures to come up with an estimate of a fair value for…

Read more »

Investing Articles

Here’s how much I’d have if I’d bought 1,000 shares in this FTSE 100 defence stock 5 years ago

I could have made a pretty penny investing in this leading FTSE 100 defence stock. Now I’m looking at a…

Read more »

Investing Articles

1 potential millionaire-maker UK stock I’d like to buy for the long haul

For long-term investors, here’s 1 UK stock to consider buying right now with the potential to help power a growth…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

These cheap UK shares look way too good to ignore right now

With the UK stock market reaching new highs recently, this Fool plans to grab these two remaining cheap shares before…

Read more »

Young Woman Drives Car With Dog in Back Seat
Investing Articles

This unloved UK stock could rise 120%, according to a City broker

Some City analysts reckon a once-popular UK stock can recover from its massive recent decline and go on to more…

Read more »

Investing Articles

These FTSE dividend shares all offer 6%+ yields!

Paul Summers highlights three FTSE dividend shares that offer big yields. But is the passive income stream sufficient to offset…

Read more »