Growth stocks are back on the menu, with the UK economy expected to avoid careening into recession in 2023.
That’s according to the Confederation of British Industry (CBI), which now forecasts GDP growth in 2023 will be 0.4%, an upgrade from the -0.4% it had predicted previously.
Despite the sunnier macro picture, I’m steering clear of these two high-profile UK growth stocks.
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Not so sage?
In my view, fintech firm Wise (LSE:WISE) is treading a path that’s not as savvy as its name suggests.
The company recently showcased a year-on-year Q1 revenue increase of 29% to £240m. In response, the market has driven up its share price.
However, investors shouldn’t be swayed by these numbers. Below the surface, there are signs of trouble.
While Wise’s top-line numbers may appear robust, they mask an underlying deceleration in the firm’s growth. This deceleration, according to Citi analyst Andrew Gardiner, stems primarily from a decline in average volumes per customer, a crucial driver of long-term growth.
Looking ahead to FY 2024, Wise expects its growth to slow down to 28%-33%, largely because of declining customer usage.
This signals a sharp departure from the stellar 73% income growth experienced in FY 2023. Such a slowdown, coupled with the company’s warning of “unusual trends” from FY 2023, paints a picture of uncertainty.
Moreover, competition in the fintech space is on a steep incline, further challenging Wise’s prospects.
Giants like PayPal, Amazon Pay, and Western Union to newer entrants like Atlantic Money and DonorBox are all vying for a slice of the lucrative fintech pie. The barriers to entry are low, reducing the likelihood of any particular company maintaining a dominant position.
While Wise’s short-term performance may have dazzled some, I’m giving this particular growth stock a wide berth.
Greeting growth goodbye
Moonpig (LSE:MOON), the online greetings card retailer, has been basking in the sunlight of market favour recently. While the company’s FY 2023 profit beat expectations and shares have risen by a whopping 40% year to date, the truth may be less rosy.
The firm recently reported a 13% fall in its pretax profit for fiscal 2023. This comes despite a revenue rise of 5.2% to £320.1m, due to increased expenses.
What’s more, the company forecasts a rather uninspiring low single-digit revenue growth for the first half of the new fiscal year. This doesn’t bode well for a company touted as a growth stock with a price-to-earnings (P/E) ratio of 20.
Despite the CEO’s optimistic talk about high profitability, strong cash generation, and flexibility, the market may not be convinced. Moonpig is currently the eleventh-most shorted stock on the London Stock Exchange, a telling sign of scepticism from big money managers.
While Moonpig may be currently flying high, the undercurrents of higher costs, muted growth forecasts, and a potential drop in discretionary spending make it a growth stock I wouldn’t touch with a 10-foot pole.
