Right now, sentiment towards UK growth stocks is a little depressed. As a result, the share prices of many growth companies – especially those that are smaller in size – are well off their highs.
History shows, however, that at some stage in the not-too-distant future, sentiment is likely to improve, pushing up share prices across the board. With that in mind, here’s a look at two British growth shares that could potentially surge in the next bull market.
A scalable business
First up is Keystone Law (LSE: KEYS). It’s a law firm that operates a very scalable platform model.
This stock has been out of favour for a while now. It seems recession fears (legal activity is positively correlated to economic growth) and recruitment challenges have spooked investors. And these are certainly valid risks here.
A bull market could dramatically change sentiment, however, as the business is still performing quite well.
Recently, the company told investors that the favourable market conditions reported in H1 2023 continued in H2, resulting in another strong performance.
It added that it expected both revenue and adjusted profit before tax for the year ended 31 January to be “marginally ahead” of market expectations.
“I am confident that as the recruitment market stabilises we will see further impetus to our future growth,” commented Founder and CEO James Knight.
At present, Keystone Law shares sport a forward-looking price-to-earnings (P/E) of around 21. I see considerable value at that multiple, given how scalable this company is.
A yield of around 3% adds weight to the investment case.
Strong dividend growth
A second growth stock that I think could perform well when sentiment towards UK shares improves is Gamma Communications (LSE: GAMA). It’s a technology company that provides communications solutions to businesses across the UK and Europe.
This is another stock that has been out of favour for a while now. For the best part of a year, the company’s share price has gone sideways.
Yet Gamma continues to make progress.
For 2022, the company generated revenue of £484.6m and adjusted earnings per share of 71.8p, up 8% and 12%, respectively.
And the company raised its dividend for the year by a healthy 14% to 15p per share. This suggests to me that it’s confident about the future.
Looking ahead, management noted that the board is positive about the outlook for the group in 2023 and beyond.
“We believe that more and more businesses of all sizes are seeing the advantages of Unified Communication as a Service (UCaaS) and we expect to see continuing growth,” said Chair Richard Last.
These results, and the fact that the stock trades on a P/E ratio of just 15 right now, lead me to believe that this stock could jump when we next see a bull market.
It’s worth noting that a risk here is growth in Europe. Last year, it was underwhelming.
Overall though, I like the risk/reward set-up at current levels.
