Argo Blockchain (LSE: ARB) is one of the most popular UK growth shares right now. Last week, for example, ARB was the sixth most purchased stock on Hargreaves Lansdown.
Argo Blockchain isn’t a stock I’d personally buy. I see it as too speculative in nature. Having said that, there are plenty of exciting high-growth UK stocks I would buy today. Here’s a look at two.
A high-growth UK tech stock
One UK stock I think has enormous long-term growth potential is Kainos (LSE: KNOS). It’s a leading provider of digital transformation services, which is a booming industry right now. It helps its customers (which include Netflix, Booking.com, and the UK government) with solutions in relation to cloud computing, artificial intelligence, cybersecurity and data analytics.
There are a number of reasons I’m bullish on Kainos. One is the company has real momentum right now. Just recently, Kainos said that momentum (outlined in its trading statement dated 22 January 2021) has continued and it expects results for the year ended 31 March to be at the upper end of current market consensus forecasts. The company added it believes it’s well-positioned for further growth.
Another is that the company’s financials are very impressive. Kainos has an excellent track record when it comes to generating growth. Between FY2015 and FY2020, revenue climbed from £61m to £179m. It’s also very profitable. Over the last five years, return on capital employed has averaged 43%. On top of this, the balance sheet is robust.
On the downside, Kainos does have a high valuation. Currently, the forward-looking price-to-earnings (P/E) ratio is about 40. This adds risk to the investment case. If growth slows, the stock could fall.
But I’m comfortable with this risk, given the quality of this business. I think this stock has a lot of potential in today’s digital world.
A UK 5G stock
Another high-growth stock I’d buy today is Calnex Solutions (LSE: CLX). It’s a British technology company that specialises in testing and measurement services for telecommunication (5G) networks. Its customers include BT, Ericsson, Nokia, Intel, Qualcomm, IBM, and Facebook. In the years ahead, I expect CLX to benefit as telecoms networks are expanded to handle new technologies, such as autonomous vehicles and smart-cities technology.
Calnex is growing rapidly at the moment. Between FY2018 and FY2020, revenue jumped 63% to £13.7m. For the year ended 31 March (FY2021), revenue of £17.3m is expected. It’s worth noting that in February, the group advised that revenues for FY2021 would be ahead of market expectations.
Like Kainos, this is a high-quality business. Not only is it very profitable (return on capital employed in 2020 was 36%) but it has a rock-solid balance sheet with minimal debt. In my view, it has all the ingredients to be a great long-term investment.
Of course, there are risks to the investment case. One is that a large proportion of the company’s orders are made in US dollars. So a stronger pound could hurt profits. It’s also a very small company which means its share price could be volatile.
Overall however, I think the stock offers an attractive long-term risk/reward proposition. At its current valuation (forward-looking P/E ratio of about 29), I see considerable value.
