1 impressive growth share I’d add to my portfolio for 2023

Gabriel McKeown identifies a growth share in the FTSE 250 with impressive underlying fundamentals that’s on his list for 2023.

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I’ve always been more comfortable investing in traditionally value companies. These tend to have low price multiples, underlying solid fundamentals, and a stable share price. There’s something about this last element that has always appealed to me. I’ve often been willing to accept slow future growth due to the security of knowing my investment is fairly safe.

However, over the last year, I’ve decided to look closer at the possibility of growth investing. There are opportunities within the FTSE 250 index that allow a reasonable level of stability and security, while producing higher returns than possible via value investing. Therefore I’ve tried to combine my previous strategy for finding value investments and apply it to the growth sector.

My growth investing strategy

What makes a good value or income investment is often clear-cut and can be seen by looking at underlying fundamentals. But a growth investment can sometimes feel a lot more complex due to the need for faith in a performance that isn’t predicted by the fundamentals. I have to hope the company’s performance will catch up and exceed the current share price.

It’s also important to note that finding the right opportunity within the growth arena can take time and effort. This sector is known for having much higher price-to-earnings (P/E) ratios and a lack of stable income. It can even sometimes have a complete lack of profitability. Despite this, I use a specifically designed growth investment filter to identify promising opportunities that also include strong underlying fundamentals.

New opportunity

A prime example of what I’m after is PageGroup (LSE: PAGE), a UK-based recruitment consultant. The stock has struggled this year, down 28.7%. This has come on the back of a very strong 2021, where it rose almost 42%. Consequently, it’s trading with a P/E ratio of 12.2, which is forecast to be just 10 in 2023. This is extremely low for a traditional growth company, however, the broader earnings forecasts do fit the typical growth model.

In 2023 turnover is expected to grow by 21.8%, and earnings per share (EPS) are forecast to increase by 21.7%. These are very impressive increases and would typically warrant paying a premium. Furthermore, the company has strong profit margins and extremely high levels of return on capital employed (ROCE). These are good signs and help illustrate the company’s underlying quality and core growth characteristics.

The full picture

The company even offers a dividend of 3.3%, which is quite unusual for a growth stock. In fact, this yield is forecast to reach 4.2% next year. However, it’s important to note that this dividend was cut in 2020, indicating that it isn’t hugely reliable from an income perspective.

Furthermore, cash generation is acceptable but not hugely significant. This is worth monitoring as it will make future dividend payments less likely if it drops. Finally, the company’s earnings suffered a lot in 2020, and it swung to an operating loss, although it saw a strong recovery in 2021 and appeared to be back on track.

Nonetheless, I believe that PageGroup is a unique opportunity to add a company with both growth and value characteristics to my portfolio. I’ll aim to add the share to my portfolio in the next few weeks, ready for 2023.

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.

Gabriel McKeown 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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