1 attractive growth stock for March and beyond

Impressive double-digit-percentage growth in earnings puts this stock at the top of my watch list for consideration in March.

| More on:

Image source: Getty Images

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.

Focusing on a company’s earnings growth can be a good Idea, especially when targeting rising stock prices.

So often, the catalyst behind a well-performing share price is earnings. Investors want to see profits rising or the expectation of bottom-line progress in the near future.

Investing for growth

Dividends, on the other hand, can be less important for growth stocks. One well-reasoned school of thought is that businesses can often employ their spare cash better by reinvesting it back into operations. In that way, the firm may generate even larger earnings later.

It can be wise to fill a long-term portfolio with both types of stock. Some of them can target growing dividend streams and others, expanding earnings.  

Recently, I’ve been considering several London-listed growth stocks. For example, international online research data and analytics technology company YouGov looks interesting.

City analysts expect the firm’s earnings to grow in the ballpark of 30% in the current trading year to July 2024 and the same again next year. That’s the kind of double-digit progress I look for in a growth-focused company, so YouGov is a good one to consider.

However, I’m also running the calculator over autonomous cybersecurity artificial intelligence (AI) company Darktrace (LSE: DARK). Once again, analysts are optimistic about earnings and have pencilled in increases of over 40% and nearly 35% for the current trading year and next.

Such business progress is impressive. However, the market looks well up with events. With the share price near 484p (15 March), the forward-looking earnings multiple is a chunky 36 or so for the trading year to June 2025.

A mark of quality?

Now, I wouldn’t allow a full-looking price-to-earnings (P/E) ratio to put me off investing in a company’s shares if I believed the business had decent prospects for growth. In the past, filtering out expensive-looking stocks has kept me away from some of the market’s best performers.

Sometimes a higher rating can be considered a mark of quality. But having said that, a higher valuation does introduce an extra element of risk for shareholders.

Darktrace only needs to fall short of its earnings estimates and the market could be brutal in its re-appraisal of the company’s immediate prospects. Not only might the share price adjust lower to account for smaller anticipated earnings, the P/E itself could decrease.

Combined, those two effects may lead to a dramatic fall for the share price. It’s a scenario seen many times with growth stocks and could lead to a volatile long-term journey for Darktrace shareholders.

One of the ‘problems’ now is that on 7 March the firm issued a stonking set of half-year results with a positive outlook statement and the stock shot higher.

Sometimes, though, moves like that can retrace a bit. So I’d keep Darktrace on close watch for the time being with a view to picking up some of the shares on dips and down-days. My plan would be to hold the stock for the long term as further growth in earnings hopefully unfolds during the coming years.

On balance, I think Darktrace looks like an attractive growth company to consider for March and beyond.

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.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended YouGov Plc. 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

Young Caucasian woman holding up four fingers
Investing Articles

7%+ dividend yields! 4 FTSE 100 shares for investors to consider buying in April

These FTSE shares offer dividend yields comfortably above the index average of 3.7%. Here's why they could be good passive…

Read more »

Dividend Shares

£10k in an ISA? Here’s how to generate a ton of passive income

Passive income can provide a lot more financial freedom and security. Here’s an easy way to generate some within an…

Read more »

Investing Articles

The Aviva dividend yield’s already over 7%. Could it go higher?

Christopher Ruane explains why he thinks the Aviva dividend could be on course to grow this year and beyond. Might…

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

2 shares I’d buy to try and double my money in 10 years

Stephen Wright thinks there are still opportunities to to buy UK shares that can double in value over the next…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

NIO stock has crashed! Here’s why I still wouldn’t touch it with a bargepole

I've been watching NIO stock falling heavily, and wondering when might be a good time to get in cheaply. Here's…

Read more »

Investing Articles

Why have Rolls-Royce shares fallen this week?

Rolls-Royce shares remain the best performing on the FTSE 100 over the past year, but there's been some pullback. Dr…

Read more »

Investing Articles

With a 4.3% yield, I consider this FTSE company an exceptional investment

Oliver Rodzianko say this FTSE company is focused on quality and long-term survival. As such, he thinks he'll hold it…

Read more »

Investing Articles

How I’d invest £10,000 in a Stocks & Shares ISA and aim for a £45,500 second income

Millions of us aren’t earning the second income we deserve. Here, Dr James Fox explains how he’d get his savings…

Read more »