Growth stocks have suffered quite a severe pullback over the last 12 months. Some companies are starting to see their valuations recover from last year’s stock market correction. But many continue to trade at historically cheap valuations due to the continued economic uncertainty.
While there’s no denying the adverse implications of economic instability, it’s ultimately a short-term problem. And as a long-term investor, this volatility is a buying opportunity, in my opinion.
With that in mind, here’s one growth stock from my investment portfolio that I believe is primed for impressive gains over the next decade.
Alternative fintech banking
The world of corporate banking is complicated and rarely mentioned in conversation. But over the last five years, the digitalisation of finance has led to countless innovations in this sector. And, subsequently, Alpha Group International (LSE:ALPH) has been making waves.
The company provides foreign exchange risk management services to businesses. Firms which operate on an international scale often need to hedge against currency fluctuations to protect their bottom line. And Alpha Group’s low-cost pay-as-you-go structure made it a far more attractive option.
That’s particularly been the case for smaller businesses that can’t afford the exorbitant fees charged by traditional corporate banks.
In 2019, management launched a new payment network for instantly handling international multi-million-pound transfers. Compared to the prolonged wire transfer alternative, it proved exceptionally popular among customers. And in just over three years, this technology has evolved into a complete alternative banking suite sending the growth stock surging.
Today, it’s used by over 4,200 businesses generating approximately £29m in revenue last year versus only £510k in 2019. In fact, the alternative banking division now represents roughly 30% of Alpha Group’s top line.
In my opinion, it could soon become the dominant part of this business. This view also seems to be shared by the management team, given it has begun accelerating it’s original investment timeline for this technology by two years.
Every growth stock has its risks
As impressive as Alpha Group’s performance has been, it’s not the only firm attempting to penetrate this space. Fintech is an ever-evolving industry with other businesses seeking to disrupt traditional corporate banking. And while Alpha Group appears to be in the lead, there’s no guarantee it will stay that way.
Given the roughly $250bn global corporate banking market size, there’s plenty of room for multiple winners. But with the growth stock still trading at a rich valuation of 30 times earnings, any slowdown could pave the way for significant volatility in its share price.
Furthermore, it’s important to remember that currency risk management remains the primary source of income. At least for now. And using financial derivatives to hedge foreign exchange risk is, in itself, risky. A small mistake could result in a client losing a significant amount of money, likely leading to a permanent divorce.
Nevertheless, given Alpha Group’s solid track record of smart capital allocation, I remain cautiously optimistic about this growth stock. And that’s why I’m considering increasing my existing position this month.
