As decent as the UK stock market has performed in 2024 so far, I’m still able to find plenty of cheap growth stocks that could rise strongly if interest rates continue falling and economic confidence gradually improves.
Bargain recovery stock
One example I’d consider buying now if I had the cash is JD Sports Fashion (LSE: JD).
Now, it’s fair to say that this retailer has seen better times. A cost-of-living crisis has hammered sales and pushed the share price down almost 15% in 2024. It’s also about 40% below the record high hit in November 2021.
There’s a risk of this negative momentum carrying on if the company’s costly expansion into North America doesn’t go according to plan. As part of its strategy to diversify earnings, it recently shelled out $1.1bn to acquire US rival Hibbett.
But I would argue that a lot of fear is now baked in. A price-to-earnings (P/E) ratio of a little under 11 is cheaper than the UK stock market average. It’s also significantly below JD Sports Fashion’s five-year average P/E of 20.
On another positive note, the last update (in August) showed some encouraging signs. Management revealed a 2.4% rise in Q2 underlying sales and made no change to full-year guidance on adjusted profit.
Are those green shoots I see?
Market leader going ‘cheap’
Another FTSE stock that could prove to be a bargain in time is property platform provider Rightmove (LSE: RMV).
That might seem an odd thing to say considering the shares already trade at a P/E of 22. But Rightmove is a special company, in my view. In addition to being the clear leader at what it does, the firm’s asset-light business model means it can achieve staggeringly high margins.
Like JD Sports Fashion, the valuation is also far below the firm’s five-year average P/E of 31.
Of course, the near-term trajectory of Rightmove’s share price going forward is likely to depend greatly on how quickly UK interest rates fall from here.
A series of cuts in (fairly) quick succession could see this growth stock recapture its former glory as investors bet that earnings will rise as housing market activity picks up. But a longer-than-expected pause after the initial reduction could do the opposite.
As AI continues to be adopted, there could also be more challengers for its crown too.
Time for this fallen star to rise?
A third UK growth stock that’s looking interesting from a valuation perspective is Watches of Switzerland (LSE: WOSG).
This is another retailer that’s been battered by economic headwinds. But, again, an awful lot of awfulness now looks priced in. I can pick up the stock on a P/E of just nine right now. If trading is truly showing signs of stabilising, as management implied in June, there could be a solid recovery ahead.
On the flip side, the shares could be dragged lower by association if other businesses in the luxury space continue to trade poorly. Or the sort of watches it sells could lose their popularity to more tech-focused timepieces.
Perhaps it may be best to hold on for the next update before making a move here. Fortunately, we only have to wait until next Tuesday (3 September) for this.
