There’s an enormous amount of economic uncertainty right now. As a result of the coronavirus, the US economy just had its worst quarter since World War II, with GDP down 32.%. Here in the UK, the economy had its sharpest contraction since 1979 in Q1.
Yet despite all this uncertainty, many stocks are moving higher. That’s because they still have strong growth prospects, regardless of wider economic problems.
Here I’ll highlight three UK growth stocks that I believe have substantial potential. If you have £1,000 to invest right now, I think these stocks are worth a look.
A founder-led company
One UK growth stock I like a lot is Alpha FX (LSE: AFX). It’s a fast-growing, founder-led, financial company that offers foreign exchange (FX) hedging services to businesses. The company has a distinguished client base that includes the likes of ASOS and Halfords.
Alpha’s growth in recent years has been impressive. Over the last three years, revenue has climbed from £8.5m to £35.4m. Meanwhile, earnings per share over this period have surged from 13.4p to 30.1p.
Looking ahead, I expect the company to continue growing. Just recently, AFX advised that it remains profitable, well capitalised, and debt-free. It also said that it remains confident in its ability to generate long-term profitable growth.
AFX shares pulled back earlier in the year, but they’re now on the rise again. I’d buy today while the valuation (FY21 P/E ratio of 25) is attractive.
A top UK growth stock
Another UK growth stock that I believe has considerable potential is dotDigital (LSE: DOTD). It’s a fast-growing tech company that offers an artificial intelligence-based digital marketing platform.
DotDigital recently issued a very encouraging year-end trading update. For the 2019/20 financial year, revenue was up 12% to £47.4m, with Covid-19 having minimal impact in the final quarter. Meanwhile, the company said that adjusted EBITDA from continuing operations is expected to be “comfortably ahead” of market expectations.
What’s even more impressive, however, is that the company said it would pay a final dividend for the year. When you consider that over 40 companies in the FTSE 100 have scrapped their dividends this year, that’s a top achievement.
DOTD shares have been stuck in a trading range for over two years now. However, it looks like a breakout is on the horizon. I’d buy the stock today. The forward-looking P/E ratio is about 31.
Finally, I also like Keywords Studios (LSE: KWS). It’s an under-the-radar company that provides technical support to video game companies. Its customers include some of the biggest names in gaming, including Activision Blizzard (Call of Duty) and Epic Games (Fortnite).
The reason I like this growth stock is that video gaming is booming right now. Believe it or not, the gaming industry is now larger than the movie and music industries combined. Looking ahead, the industry looks set to continue advancing due to new technologies and the growth of ‘esports’. Keywords, as a services provider to major game developers, looks well placed to capitalise on industry growth.
KWS has had a good run recently after full-year results showed revenue growth of 30%. Yet I think the stock has the potential to climb higher in the years ahead as the gaming industry grows. I’d buy this UK growth stock today despite the fact it’s a little expensive (FY21 P/E of 35).
Edward Sheldon owns shares in dotDigital Group, Alpha FX, ASOS and Keywords Studios. The Motley Fool UK owns shares of and has recommended Activision Blizzard. The Motley Fool UK has recommended Alpha FX, ASOS, dotDigital Group, and Keywords Studios and recommends the following options: long January 2022 $75 calls on Activision Blizzard and short January 2022 $75 puts on Activision Blizzard. 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.