When a UK share’s performance stands out, I often sit up and take notice. This is because typically, such spikes follow positive developments at the company concerned. These in turn may positively impact their share prices in the days and months to come.
Here are two such stocks I’ve explored after their fast rise in early trading today.
Cerillion rallies as profit doubles
The first is Cerillion (LSE: CER), which provides business software solutions, including those for billing and customer relationship management. As I write, it’s up 11% after it released results for the half-year ending March 31.
A look at these makes it clear why investors are flocking to the stock. Its revenue is up 26% from the half-year ending March 31 2020 and pre-tax earnings are up a whole 124%.
But even better are Cerillion’s prospects. Its new business pipeline is up 9%. According to CEO Louis Hall, the company is “very confident of continuing revenue and earnings progression”.
While there appears little doubt that the company will continue to perform, it’s super-pricey as well. With a price-to-earnings (P/E) ratio of 76 times, its share price is at all-time highs. It has risen more than two times in the last year alone. I think this is one I’d buy on dips.
Diploma raises guidance
Another UK share on a tear today is Diploma (LSE: DPLM), which provides technical products from wiring to cylinders and medical instruments to customers across industries. It’s up over 8% now from its last close after it reported robust results for the half-year ending March 31 as well.
Its revenue is up by 29% from the corresponding half-year of last year and its statutory operating profit is up by 10%. It also talks of “exciting trends” for the second half, and expects “full-year results significantly ahead of our previous expectations”.
Much like Cerillion, Diploma’s share price is now at all-time-high levels. In the last year alone, it has risen by 68%. It too is trading at an elevated P/E of 67 times.
In essence, both companies have the same story. They’re defensive stocks that have performed well and have bright prospects. My conclusion is no different. It’s a buy-on-dip stock as well for me. Sorry to sound like a broken record.
Would I buy these UK shares?
But here is one thing I would bear in mind as a growth investor. Last year was particularly good for ‘safe’ stocks like Cerillion and Diploma that fulfil near-essential products for businesses to function.
But cyclical stocks from pubs to cinemas have started looking promising to investors in the ongoing stock market rally. As their prospects improve on reopening, I reckon we’ll see more investor interest in them.
With these two UK shares, yes, I’m looking for dips as buying opportunities. But I also want share price growth. Any share price increases may be relatively muted later in 2021. I’d keep that in mind before I’d buy them.
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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.