Argo Blockchain is one of the most popular stocks in the UK right now. Last week, it was the third most purchased stock on Hargreaves Lansdown.
However, ARB isn’t a stock I’d buy for my portfolio. While the company appears to be growing rapidly, there are a few risks that concern me. One is the high valuation (its market-cap is £870m and its forward-looking P/E ratio is about 350). Another is the fact its revenues and share price are unpredictable because they’re closely linked to the price of Bitcoin.
That said, there are plenty of UK growth stocks I would buy for my portfolio today. Here’s a look at two of them.
A play on the new Xbox and Playstation consoles
One UK growth stock I like right now is Keywords Studios (LSE: KWS). It’s a leading provider of technical services, such as software engineering, testing, and art creation, to video game developers. It serves nearly all of the big hitters in gaming such as Electronic Arts (FIFA), Activision Blizzard (Call of Duty), Epic Games (Fortnite) and Microsoft.
The video gaming industry is growing at a phenomenal rate. According to Mordor Intelligence, the global market was valued at $162bn in 2020 and is expected to reach $296bn by 2026. That represents annualised growth of more than 10%.
I see Keywords as a great ‘picks-and-shovels’ play on this high-growth industry. No matter what games or consoles are dominant in the years ahead, it should benefit.
One risk here is the stock’s valuation. Currently, the forward-looking price-to-earnings (P/E) ratio is about 39. This means it’s priced for strong growth. But if growth does disappoint, the share price is also likely to fall. It’s worth noting that Keywords’ share price has been quite volatile in the past.
All things considered however, I think this is a top UK growth stock. I see it as a safer pick than Argo Blockchain.
Another top UK video game stock
Sticking with the video gaming theme, I also like the look of Team17 (LSE: TM17). It’s a leading UK independent video game developer. Its games – which are available on multiple gaming platforms – include Worms Rumble, Overcooked: All You Can Eat, Monster Sanctuary, and The Survivalists.
This is a company growing at an impressive rate. Between FY2015 and FY2019, revenue jumped from £10.4m to £61.8m. Recently, it advised that for the year ended 31 December 2020, it delivered year-on-year revenue and adjusted EBITDA growth of 34% and 36% respectively – ahead of the board’s expectations. It also said it looks ahead to 2021 with confidence in its pipeline.
There are risks to the investment case, of course. One is that future game releases could be disappointing. This could impact the share price. The stock’s current forward-looking P/E ratio of 36.6 doesn’t leave a huge margin for error.
Overall however, I see a lot of appeal in this growth stock. This is a very profitable company growing at a fast pace. Again, I’d buy the stock over Argo Blockchain.