It’s a tough time for growth shares at the moment. With investor uncertainty on the rise about the long-term effects of inflation, the prices of once-thriving stocks are tanking. As horrible as this is to watch, I’m personally not concerned.
Market corrections like this one can offer excellent buying opportunities for my portfolio. And I’m following the wisdom of legendary investor Warren Buffett to “be fearful when others are greedy, and greedy when others are fearful”.
With that in mind, let’s explore two UK growth shares from my portfolio that I think have been oversold by panicking investors. I’d like to buy more of both.
A fintech disrupting corporate banking
Alpha FX (LSE:AFX) provides two main solutions to small and medium-sized businesses. The first is a currency risk management service. And the second is a suite of alternative banking tools, including the capability of completing international enterprise-scale transactions significantly faster and cheaper than traditional methods.
Over the last 12 months, this growth share has actually climbed by an impressive 30%. That certainly doesn’t sound like a stock in distress. But since the start of 2022 it’s down by almost 20% following its latest trading update.
Despite what the downward trajectory suggests, the report was actually quite encouraging, in my opinion. Revenue for 2021 is expected to come in ahead of analyst expectations at £77m – a 67% year-on-year jump. What’s more, this rapid growth has offset the expected margin pressures from increased hiring and newly acquired office space.
To me, this looks like a growth share caught in the crossfire of the current market environment. But I will admit, its valuation remains fairly lofty with a price-to-earnings ratio of 39. That could open the door to further volatility. However, given the consistent performance delivered by management so far, this is a risk I’m willing to take.
A growth share in the digital marketing space
Unlike Alpha FX, dotDigital‘s (LSE:DOTD) 12-month performance hasn’t been as pleasant. In fact, the growth share is down more than 20% over the last year. As a reminder, this company provides a cloud-based data-driven marketing platform from which companies can automate their advertising campaigns to maximise sales.
With so many new e-commerce businesses popping up, courtesy of the pandemic, demand for dotDigital’s solution seems to be skyrocketing. At least, that’s what the latest trading update would suggest, despite the lacklustre share price performance.
Going into the numbers, average revenue per customer (ARPC) increased by 19% during the second half of 2021, reaching £1,422 per month. And in turn, this pushed total half-year revenue up by 10% to £30.9m.
In my experience, when a business delivers solid results, and the share price falls, it’s usually a great buying opportunity. However, it’s not a risk-free endeavour. Scrutiny and regulations surrounding data privacy are mounting. Apple has already implemented data gathering restrictions on all devices running iOS 14. And given that dotDigital’s platform is built around analysing user data, it could create complications.
But this isn’t the first time restrictions on data gathering were implemented. And since the company was able to promptly adapt to the introduction of GDPR, I remain confident it can do the same again. That’s why I see the latest tumble in this growth share as a buying opportunity for my portfolio.
Zaven Boyrazian owns Alpha FX and dotDigital Group. The Motley Fool UK has recommended Alpha FX and dotDigital Group. 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.
