Down 50%! Two growth shares I’d buy in October

Our writer identifies a pair of UK growth shares that have seen their prices halve in the past 12 months or less, and explains why he’d buy them for his portfolio.

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It has been a busy September in the stock market. With the economy struggling, I think we could see more of the same in the coming month. But whatever happens, I think recent stock market volatility has presented a buying opportunity for my portfolio.

Some growth shares I see as having promising long-term prospects are now available to me at what I see as an attractive price. So if I had spare funds to invest in October, here are two I would happily add to my portfolio.

S4 Capital

The digital media agency S4 Capital (LSE: SFOR) has had a horrible 2022. The shares are down 50% since the start of the year.

But the outlook for these growth shares looks compelling to me. This month, S4 published its interim results. Net revenue grew 28% compared to the same period last year. The business says it expects full-year net revenue growth of 25%. It also expects to increase the number of accounts with annual billings of $20m or higher, from 6 to 20 by the end of 2024.

Growth shares with a digital focus

The cost of staffing up to service accounts is a threat to profitability, so I am glad the company is taking steps to control rising staff costs. A recession often leads advertisers to cut their budgets. I do see that as a risk to revenue growth at S4. However, the company seems to have done a good job so far building the size of its existing accounts, as well as winning new ones.

I expect digital advertising to slow down less than traditional media during a recession. That could be good news for S4 with its purely digital focus. Its heavy US presence means a strengthening dollar may actually help results at the business, which reports in pounds.

B&M

Is discount retailer B&M (LSE: BME) really a growth stock? After all, B&M saw both revenues and post-tax profits fall last year. In the first quarter of this year, sales again fell 2.2% compared to the same period last year, athough the trend improved during the quarter.

While the past year has shown business slowing, the longer-term trajectory at the company has been one of strong growth. Last year’s profits, for example, were still more than double what they had been just three years previously.

I see continued growth drivers for B&M. As the recession bites, I expect more shoppers to become increasingly cost conscious. That plays to the strengths of a discounter like B&M. I also expect a slowdown in eating out and costly entertainment, with more people opting to stay at home. With its range of homewares, food and drinks, I think that could boost sales at B&M.

Inflation remains a risk to profits. The company’s focus on sharp pricing can make it difficult for B&M to pass such increases on to customers in full.

But with the prospect of buoyant demand, possible growth in its customer base and a proven model, I expect the B&M growth story in coming years to be strong. Despite that, these growth shares have tumbled 50% in the past year.

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.

C Ruane has positions in S4 Capital plc. The Motley Fool UK has recommended B&M European Value. 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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