Earnings season is coming! 3 great growth stocks I’ll be watching in November

With a flood of updates due next month, Paul Summers picks out three quality growth stocks he’ll be paying particular attention to.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

As if inflation, supply chain disruption and the pandemic weren’t enough to keep investors on their toes, November looks like being a packed month for earnings announcements. With this in mind, here are three great growth stocks I’ll be giving particular attention to.

Quality… but at a price

Belfast-based IT solutions provider Kainos (LSE: KNOS) is down to report interim numbers on 15 November. Having more than doubled adjusted pre-tax profit to £57.1m in the previous financial year, it’s not unreasonable to think that the good times have continued. After all, the need for organisations to digitally transform their operations has never been greater.

This could be good news for the KNOS share price which has already climbed 61% in the last 12 months. I say ‘could’ because this really depends on whether the company is able to meet investors’ (lofty) expectations.

Kainos ticks many of my ‘quality growth’ boxes. High margins? Check. Strong returns on invested capital? Check. Low/no debt? Check.

The problem is that all this comes with an exceptionally high price tag of 53 times forecast earnings. So the risk here is that any slight misstep or loss of trading momentum might be poorly received by the market.

As things stand, that’s not an ideal risk/reward trade-off. Hence, I’ll be watching next month’s activity with interest.

Ticking time bomb?

I’ll also be following FTSE 250 member Watches of Switzerland (LSE: WOSG). Like Kainos, investors in the luxury timepiece retailer have enjoyed a brilliant run of late. Its stock is up a little over 180% since the end of October 2020.

Based on its Q1 update, I think there’s a chance this momentum will carry on when H1 results are revealed on 9 November. Back in August, the company said trading in the UK has been “exceptionally strong” and that the US business was seeing “excellent, broad-based growth”. Group revenue hit £297.5m — more than double that achieved over the same period last year.

WOSG shares currently trade at 33 times earnings. While still pricey, that’s far more palatable than its FTSE 250 peer’s valuation. Then again, operating margins in this line of work aren’t exactly massive (9% last year). It makes you wonder what might happen to investor sentiment if consumers begin to tighten their belts again as lockdown savings run out. 

Could this growth stock actually be a ticking time bomb? We’ll soon find out. 

Contrarian pick

Also on my watchlist is respirator and ballistics expert Avon Protection (LSE: AVON). Of the companies mentioned here, this is the one I’d be most likely to buy next month.

Labelling Avon as a ‘great’ growth stock may seem odd. The shares have plunged in value recently following news of order delays, supply chain disruption and a “tight labour market“.

To me, these issues are temporary. Even so, external forces could impede Avon for a while yet. As a result, I don’t expect a quick rebound when full-year results are revealed on 23 November. That’s despite the company saying it possessed a “strong order book” earlier this month.

Still, shares trade at under 20 times forecast FY22 earnings. This looks reasonable for a leader in a niche market with significant barriers to entry. Contrarians are also being compensated with dividends, although the yield is just 1.7%.

Taking into account this margin of safety, I’ll be hovering over the ‘buy’ button next month. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Avon Protection and Kainos. 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.

More on Investing Articles

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »

Growth Shares

As the boohoo share price falls, could it become a penny stock in 2025?

Jon Smith outlines some of the recent problems involving the boohoo share price and considers if things could get even…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Here are the worst-performing FTSE 100 shares over the last 5 years

These five FTSE 100 shares have been complete duds over the last half decade. But is there potential for a…

Read more »

Investing Articles

Nvidia stock has tripled this year! Can it keep rising?

Nvidia's latest sales update showed strong growth and the stock's been on a tear so far in 2024. So is…

Read more »