Based in the UK and looking for the top growth stocks to buy?
When it comes to investing, patience is a virtue often rewarded. It allows you to buy and hold on to a stock that you think is likely to perform well in the future.
For instance, in 2010 - Amazon (AMZN) was valued at around $180 per share. If you had invested in Amazon at the time and hung on to your stocks - today, at $3,000 per share, your money will have increased by over 1,500%.
Amazon can be easily categorized as one of the most successful and profitable growth stocks currently available in the market.
In simple terms, growth stocks are shares of companies that are expected to rise in value at a faster rate compared to the market average.
In this guide, we provide a comprehensive explanation of what growth stocks are and how you can plan your investment strategy around them. We also discuss the best growth stocks UK to consider adding to your portfolio in 2021.
How to Invest in Growth Stocks at 0% Commission
Find an online stock broker that allows you to buy growth stocks at zero commission, such as eToro.
Add funds to your brokerage account via a debit/credit card or e-wallet.
Choose the growth stock you want to invest in.
Select the number of shares you want to own.
Confirm your selection, and press on 'Open Trade' to complete your commission-free purchase.
For those who are new to the investment space, we give you a detailed account of each step in the later sections of this guide.
Best Growth Stocks UK to Invest in 2021
Some of you might already be familiar with what growth stocks are and how this segment of the investment scene works.
As such, we will dive straight into our list of the best growth stocks UK currently in the market.
1. Calnex Solutions (CLX)
This UK technology company specializes in designing solutions for network emulation and synchronization. It was listed on the Alternative Investment Market (AIM) as recently as October 2020.
The firm is expected to benefit from the rise of 5G networks and cloud computing. After all, telecommunication standards in the future will be rapidly expanded to accommodate the emergence of autonomous vehicles and smart cities. As a provider of 5G network testing services. Calnex stands to gain from ongoing developments.
The company also seems to be having a good financial year that has continued into the second quarter of 2021. At the time of its IPO listing, the shares of CLX were priced at 51p - but have since increased to 114p. This translates to a growth of around 123% in a matter of six months.
That said, you should also note that 85% of the company's orders are processed in US dollars. Meaning, when the value of the dollar weakens, it can affect profitability. However, this stock is just at the start of its AIM-listing journey - so there is plenty of upside potential to outweigh any currency risk.
2. Boohoo Group (BOO)
Boohoo Group is the owner of nine market-leading fashion brands, including PrettyLittleThing, Nasty Gal, and Oasis. The aforementioned brands are predicted to benefit from an ever-growing shift from high-street to online.
The brand is also quite popular among millennials and has an influential presence on social media platforms. A year ago, the shares of Boohoo Group were valued at around 200p. The stock price has since increased by 61%, standing at 322p per share.
3. Team17 (TM17)
Video game developer Team17 is primarily known for its Worms franchise. However, the company has a rich portfolio of other successful game series, including Escapists and Overcooked.
Due to the wider lockdown measures, 2020 actually turned out to be a good year for video game developers, including Team17. The platform launched ten new games attracting more users and revenues. By the end of the year, sales increased by 34%, reaching £83 million.
In March 2020, the price of Team17 shares stood at 574p - but has risen to 737p - which translates to an increase of 29%. There is no concern regarding the company's ability to continue developing more games. As such, there is much to be excited about with this top-rated growth stock.
4. Alpha FX (AFX)
Alpha FX has been exhibiting promising signs as a growth stock over the last year. This fintech company offers specialized solutions for international payments, collections, and risk management.
Recently the company announced group revenues increased by 31% to reach £46.2 million. This was primarily due to an increase in demand in the forex trading market, the company's number one focus.
In a year-over-year comparison, the stock price of Alpha FX has jumped northwards by 53%. The company has been steadily growing since April 2020 and is further expected to flourish in 2021 and beyond.
5. Computacenter (CCC)
Computacenter is another growth stock that overachieved in 2020. The firm provides information technology infrastructure services globally. This includes equipment, networking, and software facilities for companies in the public and private sector.
With teleworking taking a front seat this year, the demand for IT services is also on the rise. The company is run by Mile Norris, one of the longest-running chief executives from the FTSE 250.
The group finished 2020 with a 7% increase in total revenues. At the time of writing, the stock price of Computacenter had increased by 132% since March 2020.
6. Zoom (ZM)
Looking past UK companies, Zoom is another firm that has displayed a significant rise in stock price since 2020. Though the company was launched in 2011, the COVID-19 pandemic was the final push it needed to secure its footing in the market.
It is common knowledge of the role Zoom played in bridging the distance between friends and family during the time of confinement. Zoom Video Communications went public in 2019 at $61 per share.
Today, early backers are looking at a return of over 450% at the current stock price of $336 per share. In a matter of two years, the company has shown exponential growth, making it a potential option for your growth stock portfolio.
7. Rightmove (RMV)
Rightmove is one of many property websites in the UK, albeit, it has offices across the world.
Although the real estate industry suffered somewhat during the pandemic, shares of Rightmove have still been consistently growing since the early months of 2020.
Moving swiftly into 2021, the company's financial performance is expected to pick up further as the UK reopens in the coming months.
8. Keystone Law Group (KEYS)
Keystone Law is an innovative law firm that has been pioneering modern working practices in the industry. The company recently won the title of 'Law Firm of the Year’ awarded by The Lawyers.
During the pandemic, the firm provided platform-based services, enabling lawyers to pursue remote working. Although growth was underwhelming in 2020, since the beginning of 2021, its stocks have picked up again.
As of 31st December 2020, Keystone Law shares were priced at 505p. Fast forward to 18th March 2021, and the stocks have increased by 21%, an impressive growth rate for a duration of just three months.
9. Peloton Interactive (PTON)
This tech-driven company specializes in providing the latest fitness equipment for your home gym. Its products incorporate cutting-edge technology and a personalized Peloton instructor.
In effect, you are looking at training infrastructure that can give you access to routines, strategies, classes, and other exercise tips. Naturally, Peloton has experienced rapid growth in this industry, fueled during the pandemic as people have opted to stay at home and workout.
As such, its shares have skyrocketed. At the time of launch in 2019, the stock price of Peloton was valued at $25, which has since increased to $108. Wall Street forecasts argue that Peloton's growth is not likely to be hindered any time soon.
10. Trade Desk (TTD)
Trade Desk is a platform that leverages ‘power to data’ to develop marketing campaigns that convert into sales. The company works with cloud-based services to sell data to advertisers.
Since the boom of eCommerce, Trade Desk continues to outperform market expectations and revenue targets. Further, the company has also experienced speedy growth in the stock market.
The firm went public in 2016, selling its shares at a price of $27 each. The shares have since breached $695 - showing a return of over 2,474% since its IPO.
The Basics of Growth Stocks UK
If you are new to the concept of growth stocks, the best place to start is by understanding the fundamentals.
Put simply, growth stocks refer to shares of companies that are expected to achieve a significantly higher rate of return compared to the market in general.
In other words, growth stocks have the potential to generate larger financial gains for investors in the medium-to-long term.
One excellent example of a growth stock is Netflix.
When the company went public in 2016, its shares were valued at $101 each.
In the last five years, the company has made huge gains that are reflected in its ever-growing stock price.
At the time of writing, Netflix stock is worth $505 per share.
As such, the company has yielded returns of over 400% for its stockholders.
That said, it is worth noting that growth stocks rarely pay dividends. Instead, profits are reinvested back into the firm in order to advance its growth.
How to Identify the Best Growth Stocks UK
Growth stocks often represent an exciting opportunity to back a new company in an emerging market. As such, it is important that you know what sets growth stocks apart from traditional shares.
Below we list several characteristics to look for in order to identify the best growth stocks UK for your investment portfolio.
Emerging Industries
A common trend among growth stocks is that they will be establishing themselves in an emerging niche that is likely to exhibit strong growth in the future. Take the example of Netflix, Amazon, or Tesla - all these stocks have this aspect in common.
They all had a business model representing innovative products or services. Today, you can find several such options in the technology industry, such as automation services, big data, or even renewable energy.
In other words, these products might have the potential to drastically change their respective industry.
However, there is no guarantee that your chosen company will perform as per market predictions. As such, you will be taking a risk that is based on the potential of the stock, much like any other investment.
That said, this fundamental analysis alone is not enough to find the best growth stocks UK to invest in. As growth stocks are in the early stage of their journey, you will need more data-driven approaches to find out how they fit into their respective industry.
A High Price-to-Earnings Ratio
One of the most common ways used to spot growth stocks is to calculate the P/E ratio. To give you an overview, the price-to-earnings (P/E) ratio tells you the relation between the stock price of a company and its earnings per share.
Generally, growth stocks tend to have a high P/E ratio. This figure will give you an idea of whether the company is likely to be under or overvalued. Under normal circumstances, the higher the P/E ratio, the higher the likelihood that the stock overpriced. These stocks are, of course, to be avoided.
However, in the case of growth stocks - a high P/E is actually normal. After all, such companies generally reinvest their profits back into the business.
This is to ensure there is sufficient capital to fund the firm’s advancement, ensuring growth in the long term. This strategy is one of the reasons why growth stocks typically do not pay out dividends.
No Dividend Payments
As we discussed, the majority of the growth stocks reinvest the profits back into the company itself. This allows them to access more funds for future development, as well as generate more earnings in terms of capital appreciation.
In other words, as a stockholder, this will allow you to sell the shares at a higher price than you bought them for. On the other hand, this means that you will not be paid any dividends.
For instance, Amazon is a growth stock that has performed exceedingly well, but it is yet to pay out any dividends to its stockholders. The company continues to reinvest its funds into ventures such as cloud computing, artificial intelligence, and more.
Unstable Financial Records
As a high P/E ratio will often point out, growth stocks will appear overvalued at first glance. This is primarily because such companies are yet to reach their full potential in their respective industries.
Take the case of Netflix, for example. At the time it was launched, the usage of online streaming services was at a low point.
Over the years, the company adjusted its business model and subsequently experienced exponential growth. As such, not only does Netflix continue to increase its subscribers, but its market capitalization and share price, too.
However, despite these successes, in terms of cash flow, the financial surrounding Netflix is still far from sufficient. This is because the firm still relies on raising money from investors to meet its goals.
But, the company has been able to convince investors that there is plenty of growth potential in the future and thus - this is reflected in its ever-increasing stock price.
Stock Exchanges for Best Growth Stocks UK
In the UK, you can find the majority of stocks listed on the London Stock Exchange (LSE) and the Alternative Investment Market (AIM). However, the AIM is more preferred by small-cap companies in order to access capital from the public market.
As you can imagine, this means that the lion's share of the best growth stocks UK will be listed on the AIM. This gives such companies access to greater regulatory flexibility compared to the LSE.
Therefore, if you are looking exclusively for the best growth stocks UK, you are best to focus on the AIM. However, it can be tricky to find growth stocks that are worth your attention.
In fact, many companies that might appear as growth stocks might benefit from a brief period of success but then fail to reflect its success in the long run.
An alternative approach will be to invest in ETFs rather than trying to find the best individual growth stocks.
Meaning, you will be buying the stocks of multiple companies listed on the AIM. This will allow you to benefit from the expansion of the wider growth stock market, as well as diversify your portfolio.
Difference Between Growth Stocks and Value Shares
Both growth stocks and value shares are preferred by investors looking for capital appreciation. However, there are some key differences that set these two widely apart.
For one, value shares are often identified as undervalued stocks - meaning they are likely to be trading at a lower price than their inherent value. On the other hand, growth stocks are arguably overvalued - due to the high expectations that investors have placed on them.
With that said, when investing in growth shares, you stand a chance to invest a small amount and make considerable returns in the future. Although such companies often have a higher P/E ratio, this does not always mean that future earnings won't increase in the near future.
In the case of value shares, the respective stock might be available at a lower price because of a temporary reason - such as a bad earnings report or a piece of negative news.
Value companies also tend to pay out strong dividends. This will generate a reliable income for investors. As such, value shares are a favourable option for those who are looking for regular income from their portfolio.
All of this points out the fact that value shares are generally well-established companies. Their share prices might be low at the moment due to a temporary dip in the market or because they pay out dividends.
On the contrary, growth stocks are overvalued and do not pay dividends. These shares entice investors with the speculation that they will be of significantly higher value in the future.
Considering these factors, experienced investors choose to include both growth and value stocks in their portfolios.
This diversification allows them to balance the risk and reward. In simple terms, it will allow you to benefit from capital appreciation of growth stocks while still being able to collect dividends from value shares.
Why Should you Invest in the Best Growth Stocks UK?
As you know by now, growth stocks are companies that are ahead of their curve. Those who invest in these firms believe that the underlying value of the stock will increase at a rapid rate over time.
However, in many cases, this means you will be taking a chance on a company that is yet to truly take off.
You will have to find these companies when they are still young and assess whether they have the capabilities to emerge as a market leader in the future.
To clear the mist, let us take a look at the case of Facebook:
In 2012, the company went public at a price of $38 per share.
Over the years, the concept of social networking gained more traction.
Today, Facebook is a conglomerate that owns and runs several other endeavours.
The stock price of the company stands at $282 per share at the time of writing.
As such, if you had invested in Facebook in its early years, you will be now looking at gains of over 600%.
That said, in 2012, there was no guarantee that Facebook would have been as successful than it now is. In other words, investors took a chance on the social media concept as well as the company itself. In turn, this resulted huge financial rewards.
Risks of Investing in Best Growth Stocks UK
Growth stocks might have the ability to increase in value over the course of time. However, with vulnerable finances, investing in these equities also comes with a long list of risks.
Make sure that you are well aware of the following factors before funding a growth stock.
Exaggerated Valuation
As you hopefully now know, growth stocks tend to be generally expensive compared to their market counterparts. They often have a high P/E ratio, P/S ratio, and other aspects that point to an overinflated valuation.
The reasoning behind these high prices is that growth stocks are expected to exhibit rapid growth for several years to come.
However, you cannot entirely neglect the fact that such companies might not perform as expected. For instance, Uber was once considered a promising growth stock when it first went public, but it has failed to meet market expectations.
There can be several causes for this. Sometimes, young companies do not perform as well as predicted, or investors simply lose faith. In effect, the stock price takes a hit, and the value of the company falls.
Unconfirmed Strategies
Many a time, growth stocks often follow an innovative business model that sets them apart. However, the chances are - as good as they might look on paper, such strategies are yet to be proven successful in the real-world market.
There might be no way to find out whether the business venture will be a success or how well the market might react to it.
One notable example of this is the Dot Com crash that led to the collapse of several promising internet companies.
Although they had acquired sufficient market capitalization, they failed to generate any profit and became vulnerable once the bubble burst.
In turn, investors suffered huge losses.
This is the harsh reality when it comes to growth stocks. Despite how great the business model might seem to you, there is no guarantee that the company will perform well in the future.
Unpredictable Competition
Another concern is that growth stocks often experience fierce competition in the respective sector. Although some companies might have pioneered a unique idea, that does not mean that they will be the only firm in play.
Many times, well-established companies can enter the market and release similar products. Their vast resources can get them more attention in the market.
For instance, when GPS was launched in the early 2000s, TomTom was very successful. From 2005 to 2007, shares of the company grew over 250%.
However, when Apple and Google started incorporating GPS on their smartphones, this had severe consequences on the stock price of TomTom. The company never managed to beat its all-time high prices in 2007 and is currently worth 70% less than its IPO listing.
How to Invest in Best Growth Stocks UK
Investing in growth stocks comes with its own benefits and risks, as with any other asset. If you are interested in pursuing this strategy further, the next step is to find out how you can purchase growth stocks online in the UK.
As we covered earlier, you will find many of the best growth stocks UK listed on the AIM. But, you can also buy shares from international marketplaces through different stock exchanges.
In order to do this, you need to find an online broker that can give you access to multiple markets. Furthermore, you should also consider the fees and commissions involved in purchasing growth stocks.
Most importantly, always make sure that your chosen broker holds a regulatory license from the Financial Conduct Authority (FCA) in the UK.
For those who don't want to spend time searching for the ideal online stockbroker, we suggest you look into eToro. This commission-free trading platform is regulated by the FCA and gives you access to over 2,400 stocks across 17 different exchanges.
Here we have created a step-by-step guide for you to make your first growth stock UK purchase on eToro.
Step 1: Create your Online Account
Signing up on eToro is an easy process that will rarely take you more than 10 minutes to complete. You will be required to fill in your basic personal information - including your full name, residential address, contact information, date of birth, and nationality.
As a regulated platform, eToro will also ask you to submit an identity document. You can choose to provide your passport or your driver's license. For proof of address, a utility bill or bank statement will suffice.
Step 2: Add Funds
The next step is to deposit investment funds into your online brokerage account. eToro gives you an array of payment options to choose from. The easiest option is to use a debit or credit card. Alternatively, you can also transfer money through e-wallets such as PayPal, Skrill, or Neteller.
Bank account transfers are also an option. However, this might take a few business days to process.
Step 3: Purchase Growth Stocks UK
Make sure that you do your research in order to find out the best growth stock UK to invest in. You can find the respective equity by searching for it on eToro.
When you have found the growth stock you want to buy, click on the 'Trade' button.
This will lead you to an order box. Here you can fill in how much you want to invest in the growth stock (in US dollars). Once ready, click on the 'Open Trade' button.
Best Growth Stocks UK - What's the Verdict?
Investing in growth stocks is a common strategy that seasoned investors take to diversify their portfolios. As you now know, the aim is to spot companies with high growth potential and hang on to your shares for many years.
Having said that, it is necessary that you are aware of the pros and cons involved when investing in unproven companies. While growth stocks can attract above-average returns, you should also consider the risks of investing in a firm that is still in its early stages.
Consequently, it is important that you analyze the market and perform in-depth research before investing your capital. If you are looking for an online broker to start your investment journey, you might consider eToro - an FCA-regulated trading platform that allows you to buy growth stock at zero commission.