There are plenty of UK growth stocks currently trading at attractive valuations. Higher interest rates are keeping many investors away from this part of the market. So this is creating opportunities for patient investors looking to inject a bit of oomph into their Stocks and Shares ISAs.
Here are two growth stocks on my buy list for July.
Ashtead Technology
While many smaller stocks have been hammered in recent years, Ashtead Technology (LSE: AT.) has gone from strength to strength. In fact, it’s up 345% since listing in late 2021, and 85% over the last year.
Ashtead Technology — not to be confused with the FTSE 100‘s Ashtead Group, which it was originally part of — is a subsea equipment rental company. It hires out everything from seabed inspection cameras to winches and dredging systems.
It works with global blue-chip customers as they focus on the energy transition, both in offshore wind and the decommissioning of oil and gas infrastructure. Many of these are increasingly opting to rent equipment to lower capital expenditure.
One big reason for its share price success is that the firm’s profits have been growing nicely alongside a surging top line. Last year, revenue increased 51% year on year to £110m, with growth across all geographic markets. This was made up of 35% organic growth and the rest from acquisitions.
Gross margins improved to 78% from 74%, while adjusted earnings per share (EPS) surged 73% to 33.4p.
One thing to note here is that the firm will likely pursue more acquisitions. While these can fuel growth, they also increase debt, which increases risk.
So far though, the company has an excellent track in this department. Its return on invested capital (ROIC) is a healthy 28%.
The stock’s trading on a forward price-to-earnings (P/E) ratio of 18.8, which is attractive for a high-growth business.
Looking ahead, the company’s perfectly placed to benefit from the energy transition. It should enjoy strong structural growth in offshore wind, as well as steady growth across oil and gas (both in maintenance and decommissions).
Analysts expect the company’s revenue to nearly double to £200m by the end of 2026.
Creo Medical
The next stock, Creo Medical (LSE: CREO), has certainly taken a hammering in recent years. The share price is down 80% since mid-2019. Ouch!
Yet the medical device firm has never been in a better position than today. It specialises in electrosurgical instruments for endoscopic (minimally invasive) surgery.
Its flagship product is called Speedboat Inject. Surgeons use this device to dissect, cut out, inject, and more, when operating on patients with pre-cancerous or malignant lesions.
Creo plans to launch more products and is already licencing out its core technology to robotic companies such as Intuitive Surgical. In November, it released Speedboat UltraSlim, a more slender version with advanced features. Worldwide adoption of this device has been strong.
Last year, revenue rose 13% to £30.8m. But with a 119% increase in the user base of its technology, revenue is forecast to accelerate to £40m in 2024 (30% growth), then to £53.6m in 2025 (34%).
One risk here is that Creo is still loss-making. It reported an operating loss of £24.5m last year. However, that was down from £30.9m in 2022, and the company’s aiming to reach cash flow break-even in 2025.
