I am always looking for growth stocks that may have fallen out of favour with investors. The market can be incredibly fickle, and it is often quick to dump a business if it has not lived up to expectations. This can lead to fantastic opportunities for investors like myself, who are not particularly bothered about a company’s short-term performance.
With that in mind, here are two growth stocks currently trading at 52-week lows that I would buy for my portfolio today.
Growth stocks with further potential
The first company is the online stockbroker Hargreaves Lansdown (LSE: HL). This corporation has revolutionised the online trading market in the UK over the past couple of decades. As consumers have flocked to its low-cost offering, profits have jumped from £177m in 2016 to nearly £300m for 2021.
Unfortunately, the company has warned that growth could slow in the years ahead. According to management, increasing competition in the market and less volatility (meaning investors do not have as many opportunities to trade) could hit overall profitability.
Based on these challenges, the market has been selling the stock recently. However, I think this presents an opportunity to acquire a market leader at a discounted price. The stock is currently trading at a forward price-to-earnings (P/E) ratio of 24, below the group’s five-year average of around 30.
I think this multiple undervalues the company and its potential, which is why I would be happy to buy this growth stock for my portfolio today.
International expansion
I would also buy premium mixer brand Fevertree (LSE: FEVR) for my portfolio of growth stocks.
The stock is currently trading just above its 52-week low, which presents an attractive opportunity. Indeed, the company is still growing, although it is just not growing as fast as the market believes it should.
After a rocky 2020, when earnings per share declined 30%, the corporation has been struggling to rebuild its international presence. Nevertheless, with total sales of just £310m, I think the enterprise has tremendous potential. It represents a tiny fraction of the global beverage market, leaving plenty of room for growth in the years ahead.
Challenges the company could face in the next few years include inflationary pressures. These could hit profit margins and hold back growth. Consumers may also trade away from the brand seeking lower-cost alternatives.
Despite these headwinds, I think the stock looks attractive as an investment for the next couple of decades at current levels. It has a cash-rich, debt-free balance sheet to support its growth ambitions, and there is plenty of scope for the group to expand into new markets. There has also been a recent notable trend of consumers upgrading to premium drinks and spirits. The company could benefit from this tailwind over the next few years.
After recent declines, it looks to me as if the market does not appreciate Fevertree’s strong brand and expansion potential.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Fevertree Drinks and Hargreaves Lansdown. 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.
This post was originally published on Motley Fool
