3 UK growth stocks I’m watching in October

As the market prepares to enter a very news-rich period, Paul Summers highlights three UK growth stocks he’s keeping an eye on.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

October looks like being a packed month for updates from London-listed companies. This afternoon, I’m taking a look at the small-cap end of the market and three UK growth stocks in particular. Can their recent positive momentum continue?

Hotel Chocolat

High street and online retailer Hotel Chocolat (LSE: HOTC) should be releasing its delayed set of full-year results on 5 October. Normally, a postponement would be taken negatively by shareholders but HOTC’s share price has held up well. In fact, it’s up almost 9% over the last month.

This isn’t completely irrational. Back in July, HOTC said revenue in its last financial year hit £165m. That’s 24% higher than in FY19 — the year before Covid-19 struck. So trading’s clearly far from terrible. 

On the flip side, I’m conscious that only a relatively small percentage of stock is actively traded (CEO Angus Thirlwell still owns over 25% of the company). Such a small free float does mean it’s share price is theoretically more susceptible to violent moves, both up and down.

This matters considering the valuation. A P/E of 42 looks very expensive and HOTC simply can’t afford to rest on its laurels if recent momentum is to continue. Should it disappoint in any way (perhaps in relation to rising costs), I might actually get the entry price I’ve been looking for. 

Tristel

Another steeply-valued small-cap UK growth stock reporting next month is contamination control product manufacturer Tristel (LSE: TSTL). It reveals full-year figures on 18 October. 

Like Hotel Chocolat, Tristel is a stock I’ve long admired but never pulled the trigger on. It’s a high-quality, financially-sound company operating in a niche area. Let’s not forget that Covid-19 has cemented the need to do everything possible to reduce infection in healthcare settings. This should provide the company with a springboard for further sales growth. 

However, I just can’t get away from that valuation. A P/E of 60’s eye-watering, even if Tristel has hinted that a rise in (non-pandemic-related) hospital admissions towards the end of its financial year has increased demand for its disinfectant products.

Regardless of it doing everything right from here, a more general stock market wobble could really hammer the price as investors dash to cash. That makes for an unattractive risk/reward trade-off, in my view. As a result, Tristel remains stuck on my watchlist, for now.

Totally

Penny stock Totally (LSE: TLY) is a final small-cap UK growth stock I’ll be following next month. A Q3 trading update from the healthcare solutions provider is scheduled for 28 October.

Of the three discussed today, TLY shares have performed the best over the last year, almost doubling in value. Based purely on valuation, Totally also looks a lot more palatable than both HOTC and TSTL. Its shares currently command a forward P/E of 22. The balance sheet looks fairly solid and there’s an experienced management team at the helm.

Naturally, there are things to be wary of. The fact that Totally is only trading around the breakeven level right now is the key drawback for me. This is also a low-margin business. And while recent demand from the NHS has clearly been good, it’s worth questioning what happens when the Covid-19 storm finally passes. 

Another interesting UK growth stock then, but not one I’d feel comfortable buying before next month’s update.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Hotel Chocolat. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

If I’d invested £5,000 in a Nasdaq index fund 5 years ago, here’s how much I’d have now

The Nasdaq index keeps hitting new all-time records in 2024, as US tech stocks fly. How much could I have…

Read more »

A senior group of friends enjoying rowing on the River Derwent
Investing Articles

£500 to invest a month? Consider aiming to turn that into a £20,000 passive income like this!

With a regular monthly investment, it's possible to build a large and steady passive income for retirement. Royston Wild explains.

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Investing Articles

As retirement needs soar 60%, here’s how I’m building wealth with UK shares

A regular investment in UK shares and funds could help Brits create a large and lasting pension. Our writer Royston…

Read more »

Investing Articles

I’d buy Games Workshop shares before they reach the FTSE 100!

Games Workshop shares look likely to join the FTSE 100 soon. Here’s why I think investors should consider buying the…

Read more »

Businesswoman calculating finances in an office
Investing Articles

Could me buying this stock with a $2.5bn market-cap be like investing in Tesla in 2010?

Archer Aviation (NASDAQ:ACHR) stock's nearly doubled so far in November. Could this start-up be another Tesla in the making?

Read more »

Investing Articles

5,000 shares of this UK dividend stock could net me £1,700 a month in passive income

Our writer calculates the passive income he could earn from holding a significant number of shares in this powerful dividend-paying…

Read more »

Investing Articles

9.3%+ yields! 3 FTSE 100 dividend giants to consider buying

Our writer examines a trio of high-yield FTSE 100 shares and explains some of the opportunities and risks he sees…

Read more »

Investing Articles

As the Kingfisher share price drops on Budget fallout, should I buy?

The Kingfisher share price was on a strong 2024 run until the DIY group warned us of the possible effects…

Read more »