As a rule of thumb, I try to avoid investing in something if I can’t see myself holding it for at least five years. This is particularly the case with growth stocks. These companies usually need time and space to make a full impact on the industry in which they operate (if that happens at all).
With this in mind, here are two shares I’m optimistic will outpace the market over the next half-decade.
On the way back
I began buying stock in holiday retailer On the Beach (LSE: OTB) back in July 2021. Unfortunately, my timing could have been (a lot) better as the shares have continued falling since then. Clearly, my belief that profits would bounce back to form relatively quickly after multiple lockdowns was misplaced.
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Still, I’ve not sold a single share. Why? Because I think this company has a solid future, especially given recent full-year results.
Revenue for FY22 was 373% higher compared to the previous year. That’s roughly back to pre-pandemic levels. On the Beach also made a (small) profit.
Whether this marks the beginning of a sustained recovery in both trading and the share price is hard to say. Taking a holiday is clearly not a priority for most during a cost-of-living crisis.
Growth at a great price
But will On the Beach stock still be this low in five years? I’d be surprised (with the caveat that nothing can be guaranteed). It already has a 20% share of its niche market. Its online-only business model also means it saves on big fixed costs and can cut marketing spend in a flash if a particular destination suddenly becomes less inviting.
A price-to-earnings (P/E) ratio of 12 doesn’t look unreasonable either, especially if we get signs that inflation has already peaked.
As painful as the ride has been so far, I’m not going anywhere.
Quality growth stock
Another growth stock I think will beat the market over the next five years is antibody supplier Bioventix (LSE: BVXP).
There’s not enough room here to explore the science behind what the company does. Even so, I know it ticks an awful lot of my ‘quality’ boxes. These include a solid balance sheet and staggeringly high operating margins.
Recent trading has also been great. Revenue moved 7% higher to £11.7m in FY2022. Pre-tax profit rose 14% to £9.3m.
So what’s the catch? Well, a P/E of 25 means shares certainly aren’t cheap. The market isn’t stupid. It knows just how good Bioventix is.
The key thing I need to remember however, is that a valuation matters less the longer I hold the stock. This is assuming it can continue compounding returns year after year. Given the importance of what it does, I think that’ll be the case here.
Not a buyer
One other thing worth mentioning is that Bioventix clearly operates in a completely different part of the market to On the Beach. That may provide some protection if either industry encounters (more) problems.
So why aren’t I buying the stock today? It’s because I already have exposure via the CFP SDL UK Buffettology Fund managed by veteran stock-picker Keith Ashworth-Lord.
If this weren’t the case, I wouldn’t hesitate to act.
