I love growth stocks. But what exactly are they? Simply listed companies that are oriented towards business expansion and if they’re successful, they deliver strong share price growth. These are also stocks that typically look expensive because the market is pricing in future growth, which may or may not be achieved.
So, if I were investing £100 of my money each month, which growth stocks would I invest in for wealth generation? Well, here are two companies I’m backing with my own cash.
GigaCloud Technology
GigaCloud Technology (NASDAQ:GCT) is among the fastest-growing companies I’ve come across. The firm connects furniture manufacturers, predominantly in China, with buyers and resellers in North America and Europe.
And it’s on a roll. In its recently released Q4 results, GigaCloud Technology saw earnings per share reach $0.87, more than double the $0.31 in the fourth quarter of 2022. This was on the back of 95% increase in revenue and 168% increase in operating income.
The firm’s USP lies in its ability to reduce storage costs for large parcel goods, namely furniture, by shipping straight to the end user or reseller. Just picture how much space you need to store unsold furniture in the country in which you intend to sell it. This is why GigaCloud is working. Its drop-shipping and last-miles delivery service has proven incredibly successful.
Of course, it’s not perfect. It lacks the digital reach investors expect from an e-commerce company while geopolitical events and weather issues have heavily impacted shipping in recent months.
However, I find the valuation metrics incredibly attractive. Despite being up 450% over 12 months, the stock trades on a forward price-to-earnings ratio of 12 times. That figure is expected to fall to 9.5 times and 8.1 times in 2025 and 2026 respective, based on analysts’ forecasts.
AppLovin
I’m up 96% on AppLovin (NASDAQ:APP). It’s among my most successful investments at this moment in time. The company helps app and platform operators maximise their advertising revenues through its proprietary technology, and is going through a stellar growth phase.
One downside is that AppLovin’s growth has been unsteady in recent years. In fact, we’ve seen revenue fall sequentially at points. However, it appears that we’re seeing a real turnaround thanks to the recently release of AXON 2.0.
AXON 2.0 uses AI to recommend apps that users will like based on their preferences and previous activity, thus boosting revenue. To date, it seems to be working with consecutive earnings beats, and a lofty expectations for Q1.
Despite the meteoric rise of the share price over the past 12 months, AppLovin still looks cheap. The stock trades at 16.95 times non-GAAP forward earnings, and has a price-to-earnings-to-growth (PEG) ratio of 0.85.
I appreciate the PEG ratio is based on earnings estimates, and estimates can be wrong, but the figure is very attractive.
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James Fox has positions in AppLovin Corporation and GigaCloud Technology Inc. The Motley Fool UK has no position in any of the shares mentioned. 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.
