With a summer of sport well under way, I’ve been thinking about what sets world class performers apart from the rest of the pack. It’s the same when looking for growth shares, in my opinion. I’ve identified some UK growth stocks to buy, based on how I expect them to perform in future. Here are two I’m considering for my portfolio.
Going where the growth is
I continue to be upbeat about S4 Capital (LSE: SFOR). The digital advertising agency headed by former WPP boss Sir Martin Sorrell has already been on a tear, adding 124% over the past year.
So why do I think it can continue its growth trajectory?
S4 has the wind in its sails. Not only does it have top class talent and a growing reputation, it has also positioned itself to compete in an area of the market that is growing anyway. Its digital-only approach means that unlike many traditional ad agencies, it can focus full square on the digital advertising market, where demand continues to grow.
The company’s growth so far has been impressive. In the first quarter, for example, revenue and gross profit both increased 71% compared to the prior year. The company is highly acquisitive and a lot of the growth reflects that. But promisingly, the organic growth figures were also strong. Like-for-like revenue growth compared to the prior year was 35% and gross profit showed a 33% increase.
Indeed, the performance lately has been so strong that S4 upgraded its forecasts for the year. It now hopes to achieve 30% like for like growth in both revenue and gross profit across the whole year. That sort of outlook is why I include S4 Capital among UK growth stocks to buy now for my portfolio.
At the results presentation, the company hinted that more acquisition news was likely this month. That could be a further boost for the S4 Capital share price. However, acquisitions can dilute shareholders and there is a risk that the pace of acquisitions could make them difficult to integrate.
Summer of sports
A summer of sports doesn’t just make me wonder what sets outs world class performers – it also makes me think there will be increased demand for sportswear.
Both thoughts lead me to JD Sports (LSE: JD), one of the UK growth stocks to buy now for my portfolio. Retail can be a tough business, especially with growing competition online. So it is to JD’s credit that it has managed to grow turnover by a compound annual growth rate of 28% in recent years.
Growth stocks to buy now
What impresses me about JD’s growth is that it is what I would call quality growth. The company hasn’t sacrificed profit to grow. Admittedly, growth in revenue has outpaced that in earnings, suggesting a move towards a lower margin business. But that has been compensated for in my view by the increased size of the enterprise overall. That can give it advantages such as economies of scale in sourcing goods.
JD’s international expansion is also attractive to me, but it brings risks too. For example, managing far-flung businesses such as one in Australia could distract management from bigger, more critical business areas such as Europe and North America.
Christopher Ruane owns shares in S4 Capital. 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.