While the stock market has been moving broadly upwards in the past year, not all shares have done well. In fact, one FTSE 100 company has fallen 27% over the past 12 months, while the index has posted a 17% gain.
I think that could be a buying opportunity for my portfolio. Here I dig into the details of this well-known UK growth share.
Multinational brand owner
The company in question is Reckitt (LSE: RKT). The multinational giant is known for brands including Finish and Clearasil. Its operations span different areas of need, such as health, hygiene and nutrition. It sells in almost 200 countries globally.
Moreover, it has a strong history of revenue growth. In the past decade, the compound annual growth rate for the company’s revenue has been 5.2%. While that might not sound huge, I think it is impressive. Reckitt is a long-established company operating in some very mature markets. Demand for products such as dishwashing detergent is fully met in many markets. So finding a way to grow sales by more than 5%, year after year, qualifies the company as a growth share in my mind. Given the growth, why has the Reckitt share price been struggling?
The Reckitt share price
There are a couple of reasons the share price has been in decline. First, the company’s infant nutrition business continues to worry analysts. It added a lot of debt to its balance sheet to buy Mead Johnson four years ago. The business has been a source of problems ever since. Reckitt has announced plans to offload its Chinese infant formula business. That could improve management focus on the successful parts of Reckitt, but it has spooked investors who worry whether the company’s strategy is coming undone.Â
A second reason driving the Reckitt share price decline is inflation. While the pandemic boosted demand for the company’s disinfectant products like Dettol and Lysol, it also led to significant inflation of costs. The company said it is currently battling inflation of 8%-9% on average. That is bad news for the Reckitt share price. If costs rise and the company cannot fully pass them on to consumers, its profit margins will shrink.
Choosing UK growth shares to buy
Given the current challenges, why do I consider Reckitt among UK growth shares to buy at the moment?
I think some of the challenges will pass with time. There is a risk inflation of materials will reduce margins. But over time I think that will fall back, and the company can raise prices to help offset it. I see the infant formula acquisition as a costly mistake, but at least Reckitt is taking steps to fix that.
Additionally, I feel the company’s strong line-up of familiar household brands could help it achieve pricing power for years or even decades to come. That could help boost profits.
Meanwhile, the Reckitt share price fall means that the current dividend yield is 3.1%, which I find attractive. I think these UK growth shares could reward me if I add them to my portfolio and wait patiently for recovery. On that basis I would consider buying them for my portfolio.