Every month, we ask our freelance writers to share their top ideas for growth stocks to buy with investors — here’s what they said for October!
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What it does: Diploma is a collection of businesses that distribute components across a variety of industrial sectors.
At a price-to-earnings (P/E) ratio of just under 33, it’s not cheap on paper. But investing in growth stocks isn’t about what they are today so much as what they are likely to be in the future.
Diploma has a £4bn market cap and generates £128m in free cash per year. Its free cash flow has been growing at 12.5% per year over the last decade.
If this continues, then the business stands to make £416m in free cash 10 years from now. That’s a 10% annual return on an investment made at today’s prices.
Maintaining that kind of growth becomes difficult when a company reaches a certain size. That’s the risk with this company, but with a £4bn market cap, I think that’s some way off for Diploma.
Stephen Wright does not own shares in Diploma.
What it does: Hargreaves Lansdown is a Bristol-based brokerage, providing the UK’s most used investment platform.
By Dr James Fox. It may sound strange calling Hargreaves Lansdown (LSE:HL.) — a company with a 5.2% dividend yield — a growth stock, but I think the revolution in self-managed investments has only just begun.
Hargreaves is the UK’s no.1 stocks and fund supermarket, with nearly 2m active users. That’s several times more than its peers, and with its unbeatable customer service and easy-to-use platform, I believe it’s in a strong position to dominate moving forward.
Its recent earnings beat also demonstrated that the business model is robust, with a huge £268m in net interest income. Before rates started rising, this figure was almost non-existent.
While I appreciate the argument that cheaper platforms can eat into Hargreaves’s market share, I’m of the opinion that the data the Bristol-based company provides is invaluable to serious investors.
And finally, at 11 times earnings, the stock hasn’t been so cheap in years.
James Fox does own shares in Hargreaves Lansdown.
What it does: This Birmingham-based specialist engineering company, which joined the FTSE 100 in June, designs and manufactures specialist fluid and motion control systems.
By Harvey Jones. The race to net zero has hit a bump in the road after Prime Minister downgraded UK targets but IMI Group (LSE:IMI) is still playing a key role in the energy transition by helping to reduce emissions in the oil and gas industry, supporting decarbonisation, creating intelligent heating and cooling systems, and supporting the hydrogen economy.
Its shares have been growing strongly, up 31.6% in the last year. They’ve fallen around 10% in the last three months but I think this could be a buying opportunity with the stock valued at just 13.93 times earnings.
2022 revenues showed signs of acceleration, rising 9.8% to £2.05bn. This has continued in the first half of this year, too, with revenues up 12% to £1.08bn and operating profit jumping 21% to £193m.
The dividend yield is relatively low at 1.73% but the board recently hiked the interim payout by 10%, which is promising. It’s also been paying down debt.
While the economy is under the cosh today, I feel this £3.8bn company could outpace the index when the recovery finally arrives.
IMI expects 2023 full-year adjusted earnings per share of between 112p and 117p, which would mark a step up from last year’s 105.5p. I’m keen to take advantage of recent share price volatility to buy its shares in October.
Harvey Jones does not own shares in IMI Group.
What it does: Informa is a specialist international events, digital services, and academic knowledge company serving business and industry.
By Kevin Godbold. Informa (LSE: INF) is sensitive to economic cycles. That’s clear from the FTSE 100 firm’s multi-year financial record: revenue, cash flow, earnings and dividends have been volatile. And that situation adds some risk for shareholders.
However, the company has been trading well and in the ballpark of 759p, the share price trended higher over the past year. Meanwhile, City analysts expect robust double-digit percentage increases in earnings and dividends for 2023 and 2024.
In July with the half-year report, the outlook statement was positive. And the progress of the business is set against an improving macroeconomic backdrop – at least, that’s how I see it.
Chief executive Stephen A Carter said the focus is on building a “better, broader and more scalable business”. And the directors see visibility for operational momentum into 2024 and 2025.
I think the business is worth researching now as a potential hold for growth.
Kevin Godbold does not own shares in Informa.
What it does: Sage provides software services to other firms, including accounting and HR platforms.
By Jon Smith. Up 47% over the past year, Sage Group (LSE:SGE) has already cemented the position as one of the best British growth stocks of 2023. However, I don’t think the party is over yet. This is because the bulk of income is in the form of reoccurring revenue, usually in the form of software subscriptions.
In the Q3 update, reoccurring revenue was up 12% year-on-year. If I assume existing business can be maintained, then next year we should see further growth as new customers get added. This should help to filter down to higher profits. Given the correlation to the share price, this should also help to lift the stock even further than where it is now.
As a risk, I do feel the business needs to look at expanding investment into artificial intelligence, otherwise it could get left behind.
Jon Smith does not own shares in Sage Group