These FTSE 100 companies are tipped to deliver stunning earnings growth over the next two years. But I wouldn’t touch these growth shares with a long stick.
Here’s why I think they might prove to be expensive mistakes if I bought them.
Barclays
Retail banks are known as safe-and-steady investments rather than blistering growth shares. But in the case of Barclays (LSE:BARC), the opposite appears to be true.
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Well, at least that’s the situation based on current broker forecasts. The City thinks earnings at the FTSE 100 bank will soar 17% in 2024, and by an additional 23% next year.
Barclays may well achieve these targets, which in turn could drive its share price higher. A price-to-earnings (P/E) ratio of 7.3 times provides plenty of wiggle room for a charge northwards if trading news impresses.
The bank’s large exposure to the US, for instance, could help it to grow earnings strongly. But the risks to City projections are also significant for a number of other reasons.
Net interest margins (NIMs) — which dropped five basis points in the first half, to 4.2% — look set to keep falling as central banks cut interest rates. Margins will also be under pressure as challenger banks across its markets continue their aggressive expansion.
Loan growth in Barclays’ key British market could also remain subdued as the domestic economy struggles to progress. Loans and deposits dropped below £200m between January and June, continuing a steady fall in recent quarters.
Given Barclays’ heavy restructuring costs too, I think it could struggle to meet current growth estimates.
Entain
Gambling stocks like Entain (LSE:ENT) have significant investment potential as the popularity of online betting grows. This particular Footsie firm could deliver robust earnings growth too, thanks to winning brands like Ladbrokes, Coral and BetMGM.
Net gaming revenue (NGR) rose 8% at constant currencies in the first half. However, growing hostility from both regulators and politicians threatens future growth. Indeed, as a potential investor, this represents a large ‘red flag’ to me.
In the UK, the Gambling Commission has introduced various measures to reduce the problem of addiction. These include the rollout of affordability checks, betting limits and bans on fixed-odds betting terminals (FOBTs).
And this week, government sources told The Guardian newspaper that gambling companies could be hit with an extra £3bn in tax in this month’s budget. Hostility in Britain is especially problematic for Entain as that’s where it sources most profits.
City analysts expect Entain to swing from losses of 150.7p per share in 2023 to earnings of 18.5p this year. A 130% bottom-line jump to 42.6p is predicted for 2025 too.
Yet these projections also leave the Footsie firm looking mightily expensive. It trades on a forward P/E ratio of 38.1 times, which I consider far too toppy given the company’s huge risk profile.
Like Barclays, I’ll leave Entain on the shelf and search for other growth shares to buy.
