When looking to invest in the stock markets, most people focus on internal factors such as dividends and the balance sheet.
While it is a good strategy, more often than not, this strategy only leads you to invest in mature companies. Such companies are stable and safe but also have very little room for growth. Unless you are investing billions, like Warren Buffet, chances are mature stocks will never make you rich.
If you want to get rich, you need to look into growth stocks, specifically companies disrupting existing markets or creating new industries.
Companies like Google and Facebook were pioneers in an emerging industry, and anyone who got in early is now rich. Similarly, a company like Tesla is disrupting an existing industry (auto industry), and anyone who got in it early is now rich.
Since such stocks are usually small and operating with tight cash flows, they tend to be highly volatile. Even the slightest dip in the market can trigger a selloff bigger than the more established stocks. However, those who persevere the short-term volatility in most cases end up rich.
Currently, eCommerce and cybersecurity markets are in a high growth phase. There are many small companies that are getting into these markets, changing how business is done, and in a big way.
With this background in mind, Deliveroo (ROO), Ds Smith (SMDS), Ocado (OCDO), Darktrace (DARK), Boohoo (BOO) are growth stocks that have the potential to make investors rich in the long term. Here's why.
UK Growth Stocks To Consider
To provide you with some examples, here are 5 excellent UK growth stocks available in the stock market today:
1. Deliveroo (ROO)
With the rise in popularity of working from home and suburban office spaces, food delivery services like Deliveroo have a good future ahead for them.
One of the most important things that investors look for before investing is a company's financial performance. Deliveroo stands out quite strongly on this front as a UK growth stock that could grow in value and make investors rich.
While doing an overview of its annual financial performance earlier in the year, Deliveroo announced that it had hit its target of 60-70% projected transactions value growth for 2021. Most of the growth was recorded in Q3 and Q4 of 2021.
This is a big deal and points to the fast adoption of Deliveroo services. Given that demand has not slowed down despite the easing of COVID-19 restrictions, it is safe to postulate that Deliveroo will deliver even better going into the future, and the same will reflect in its stock price.
For a company to make stockholders rich, it also has to be investing to entrench itself in the market, through a bigger market share, and better customer service. Deliveroo is doing pretty well on this front through strategic partnerships.
The most important partnership that Deliveroo has inked this year is with Waitrose, an upmarket groceries company. The goal of this partnership is for the delivery of Hummus within 10-minutes. This will improve customer satisfaction, create customer loyalty, and in the process, increase the potential growth prospects of Deliveroo as a UK growth stock that can make you rich.
It is not surprising that Deliveroo's user numbers are on an exponential growth trajectory with such moves. Back in 2017, Deliveroo had 3.1 million users. Currently, this number had shot up to 8 million. Monthly active users have also increased from 3.3 million users to 3.4 million.
Besides its core fundamentals, it is always good to look at the stock price before investing. When investing for the long term, you can buy a stock at any price. However, you stand better odds of getting rich if you buy a stock when it's trading at a low price in anticipation of gains in the future.
In the case of Deliveroo, despite recording massive growth in 2021 and getting into strategic partnerships in 2022, the stock price has been on a downtrend since October 2021. This was triggered by a drastic change in regulations in the EU regarding the gig economy. However, as companies better adopt these regulations, investor confidence will return, which could help drive up the stock price.
That said, getting rich in the financial markets is all about taking calculated risks. In this case, the risk-reward level is attractive. The price is low, revenues are growing, and home deliveries are becoming the norm in all major economies. Deliveroo's revenues could be multiple times where they are today in a few years.
2. Ds Smith (SDMS)
Ds Smith is a company that has found success in the e-commerce economy. They offer packaging services for companies selling online, and their demand by these businesses are at an all-time high.
During the pandemic-driven online buying of 2020/21, DS Smith saw demand for its recycled cardboard boxes grow exponentially. While the pandemic is now in the past, online shopping now seems to have become the norm in most parts of the world, especially in the US and the UK This means demand for packaging materials such as those provided by DS Smith will only grow.
While other players offer this service, DS Smith is among those who have already established a presence in the market. DS Smith already has contractual agreements with some of the largest online retailers in the world, the most important of them being Amazon.
Besides operating in a growth industry, DS Smith is also a profitable company. Per its financials for H1 of 2021/21, DS Smith's operating profits increased by 20%, to hit £276 million. Earnings per share also increased by 81% in just 6 months.
Despite its strong core metrics, DS Smith's has been on a downtrend since September 2021. The selloff has accelerated in 2022 mainly due to a softening of the equity markets as interest rates go up.
Once the short-term factors holding down DS Smith are behind it, this is one UK growth stock that could generate high ROI. The fundamentals are in its favour.
3. Ocado (OCDO)
The grocery industry has been growing at an impressive rate, and Ocado has proven itself to be a major player in this market. With their strong management and innovative products, few businesses can offer what they do.
One thing that makes Ocado stand out is its strategic approach to the market. Ocado has lately been entering into strategic partnerships that could help unlock its value in the future. For instance, in February 2022, Ocado got into a strategic partnership with Groupe Casino in a move that will see Ocado grow market share all across France.
Ocado is also making strategic investments that are costly now, but will help lower costs, and significantly enhance efficiency in the long run. One such investment is in robotic warehouses.
The move to invest in automated warehouses saw Ocado losses increase to £176.9 million in 2021, despite revenues growing by 7.2% to hit £2.5 billion. The good thing is that once this investment starts to pay off, Ocado's will return to profitability, and the same will reflect in its stock price over time.
It is also noteworthy that Ocado's customer numbers are on a growth trajectory. For instance, Ocado's customers increased by 22.4% in the last financial year and hit 832k. By investing in technologies that could cut on the cost of doing business, these benefits will be passed to the customer and draw more of them to Ocado. Ocado's prospects are also enhanced because more people now prefer doing their grocery shopping online.
The best part is that Ocado's books are quite good for a growth stock.
For instance, Ocado's debt is within manageable levels and has been for a while now.
While its total debt has increased, so has its total net cash assets. That's an indicator that debt is being appropriately utilized to grow the company's balance sheet.
Even with all this potential, Ocado has been downtrend for close to a year now. However, this is due to temporary factors such as a factory fire, heavy investments, and recently a weakening in the broader stock markets.
Once these issues are solidly behind it, Ocado could appreciate significantly. It's without a doubt a growth stock that could appreciate in value.
4. Darktrace (DARK)
The world has fully gone digital, and most finance and healthcare services are now done online. This digitization will only get more sophisticated as the years go by, as new technologies continue to change life as we know it.
However, this also means that the world is increasingly more vulnerable to cyberattacks. State actors have complicated cybersecurity and now put critical infrastructure and sensitive corporate info at risk. Geopolitics has also heightened cybersecurity risks, and things could worsen over time.
These issues have created a massive opportunity for cybersecurity companies, and Darktrace is set to reap big. Darktrace has already seen its stock rally following the increased risk of cyberattacks after Russia invaded Ukraine.
Besides benefiting from an environment that favours cybersecurity companies, Darktrace is also actively working to increase market presence. Darktrace recently announced that it had created a division that will protect some of the U.S. government's most sensitive infrastructure. This is a big deal, and could see other governments worldwide start taking up Darktrace services and driving up revenues.
5. Boohoo (BOO)
The fashion industry has long been a target for startups. The growth of online shopping and social media sites like Instagram have only accelerated this trend, as more people turn their attention from brick-and-mortar stores to virtual boutiques they can access anytime, anywhere.
One company that has carved a niche in this market is Boohoo. Not only is Boohoo expanding its reach in the fashion market, but it is also doing so profitably. That's a plus compared to many disruptive companies that tend to operate in losses for years before finally turning a profit.
Since 2017, BooHoo's revenues have been on a consistent uptrend. In 2021 alone, BooHoo revenues grew by 41%. BooHoo has also been net cash positive for years, and the amounts have been going up every year. For context, BooHoo had net cash of £276 million in 2021, up from £240.7 million in 2020.
With more people turning to online shopping, BooHoo revenues are bound to get better in 2022 and for many years to come. This, by extension, means that Boohoo's intrinsic value will only go up over time.
Interestingly, Boohoo's stock price has taken a hit over the past year. Since 2021, BooHoo is down by close to 80%. In March 2022 alone, BooHoo is down by over 30%. This is due to weakness in the stock markets as a whole and negative press regarding Boohoo's supply chains.
However, these are short-term factors. When you consider that BooHoo is profitable and is an industry disruptor, there is no doubt that the price drop has made it massively undervalued.
If you go by the Mantra of wealthy investors to buy stocks when there is blood on the streets, Boohoo is a good stock that has bled out for a year now. Once its price turns a corner, it will be one of the top UK growth stocks that could make investors weather. It has all the hallmarks of a value stock.
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