In both the UK and the US, growth stocks have been falling. And when this happens, investors should be on the lookout for buying opportunities.
Even the best businesses go through difficult times. But the best ones are able to make it through to the other side and provide outstanding rewards for shareholders.
Diploma
The Diploma (LSE:DPLM) share price is a great example of what happens when a company’s growth slows. It’s fallen almost 11% since the start of the year.
The business is still growing – its latest trading update reported 7% sales growth, boosted by another 7% from acquisitions. But the firm indicated this is set to drop in 2025. As a result, the stock’s gone from trading at a price-to-earnings (P/E) ratio of 31 (based on the company’s adjusted figures) to 26. And that’s caused the stock to fall.
If the slower growth rate proves to be temporary, Diploma shares could turn out to be a terrific investment. I think it’s a stock growth investors should absolutely have on their radars.
Amazon
Shares in Amazon (NASDAQ:AMZN) have fallen 21% since the start of the year. A big reason for this is tariffs, which could reduce activity in the firm’s online marketplace.
That’s why the stock’s down and this is a real risk. But it trades at a (P/E) ratio of 32, which is well above the S&P 500 average, but unusually low for the company.
Recently, Amazon’s sales growth has been led by its cloud business and advertising division. As a result, margins have widened as revenues increased, giving earnings a double boost.
I think there’s a lot more to come from both parts of the business. So I think the unusually low P/E multiple is an opportunity for investors to take a look at an extremely high-quality stock.
Five Below
US retailer Five Below (NASDAQ:FIVE) might be the best opportunity of them all. It’s a discount retailer that’s seen its share price fall 58% in the last year.
The big risk for the business is inflation. Around 45% of its sales come from households with incomes below $50,000 and these are the budgets that are hit hardest by higher costs.
That’s not good, but I think the stock’s fallen too far. In terms of growth, Five Below plans to double its store count from where it was at the end of 2024 over the long term.
This expansion by itself could significantly boost profits. And in my view, with the stock trading at a P/E ratio of 14, it’s definitely one for growth investors to taking notice of.
The best?
I think Diploma, Amazon, and Five Below are all quality businesses with outstanding prospects. Saying they’re the best is very subjective though, as is saying which one is best. That choice will come down to the individual investor.
For me, the one that appeals to me the most is Amazon. Unusually, there aren’t many US stocks in my portfolio, mostly for valuation reasons.
Others might reasonably have a different view – and I wouldn’t necessarily argue. But I’m convinced that growth investors should be looking for opportunities as share prices fall.
