With the Stocks and Shares ISA deadline (5 April) fast approaching, I have been looking for growth stocks to buy for my portfolio.
I have been looking for high-quality corporations with the potential to expand rapidly over the next couple of years. Here are three companies that I think meet my criteria.
Undervalued growth stocks
International Personal Finance (LSE: IPF) provides credit services to consumers in the UK and internationally. The firm’s profits slumped during the pandemic as it was forced to write off some loans to customers. However, growth may return over the next two years.
Based on current City estimates, the stock is trading at a forward price-to-earnings (P/E) ratio of just 5.8. Further, earnings per share could grow by 26% this year. Based on these numbers, the stock looks cheap compared to its growth potential.
Still, the last two years are a warning for investors. A sudden spike in loan losses could decimate the corporation’s bottom line. Shareholders may have to foot the bill if it needs to raise more capital to strengthen the balance sheet.
As such, while I would buy this company for my Stocks and Shares ISA as an undervalued growth investment, I will be keeping an eye on the potential challenges it faces going forward.
Aside from these risks, analysts also believe that the corporation can pay out a 6.2% dividend yield for its 2022 financial year. So not only does the company appear cheap compared to its growth potential, but it also has strong income credentials.
Stocks and Shares ISA buy
Another undervalued growth stock I would buy for my portfolio is the news publisher Reach (LSE: RCH). Over the past couple of years, this business has been moving away from its legacy print news business towards online journalism. The transition is just starting to yield results.
After a mixed couple of years, the firm is expected to report a net profit of £116m for its 2021 financial year and £117m for fiscal 2022. Based on these estimates, the stock is trading at a forward P/E multiple of 6.4.
I think this figure looks incredibly cheap compared to the company’s growth potential over the next few years. Analysts also reckon the enterprise has the potential to pay a dividend yield of 3.1% in the current year.
Despite these optimistic forecasts, Reach does face some challenges. The online news business is incredibly competitive. Its revenue is also dependent on advertising income from the tech giants, which could disappear at a moment’s notice. If this vital revenue stream is closed down, the firm may struggle to survive.
Nevertheless, considering Reach’s current valuation, I believe the stock could make a great addition to my Stocks and Shares ISA as an income and growth stock. If the company continues to reinvest in its operations and build an increasing readership base, I reckon profits will continue to grow.
Rupert Hargreaves 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.
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