UK growth stocks haven’t been the best performers of late. It’s not entirely surprising since this class of investment is usually the first to take a substantial hit during market volatility.
But after months of lacklustre performance, many of these companies are starting to look rather cheap. With that in mind, let’s take a closer look at two potentially highly lucrative buying opportunities for my portfolio.
A leader in digitalisation
Let’s kick things off with an under-the-radar UK growth stock Kainos Group (LSE:KNOS). The company specialises in digitalising operations for other businesses and governments alike. And it also provides consulting and software solutions to help optimise performance.
That may not sound like the most exciting opportunity out there. But it’s proven to be a lucrative one over the years. With enterprises constantly looking to save money through improved efficiency, the demand for Kaino’s services has been surging.
So much so that revenue in its latest earnings report grew by 33%, reaching £142.3m. And with an order backlog of over £250m, this growth doesn’t look like it will be slowing anytime soon.
Having said that, there are, of course, some risks to consider. Being so heavily involved with the everyday operations of clients like the NHS and Netflix means the group is a prime target for cyber attacks. And any successful breach of its systems could incur severe implications, especially when it comes to renewing government-based contracts.
Nevertheless, I feel it’s a risk worth taking. And that’s why I’m considering this UK growth stock for my portfolio.
Bring out the army of robots
With the pandemic having forced most people to be stuck at home, the adoption of online grocery shopping accelerated. This proved to be quite the tailwind for Ocado (LSE:OCDO). And while brick & mortar stores have reopened, the company continues to see increased order volumes on its website.
That’s obviously an encouraging sight, but it’s not why I’m excited about this UK growth stock. Over the years, management has been aggressively investing resources into its robotics platform. Consequently, the fulfilment of Ocado’s online orders is almost entirely automated using robots. And now the company is selling its warehouse automation solution as a service to other grocery retailers like Morrisons.
The market opportunity from this robotics venture alone is estimated to be worth around £22.8bn by 2026, versus £13.bn today. Needless to say, that’s quite the opportunity for the business. But it hasn’t gone unnoticed. Firms like AutoStore are developing their own robotics solution to capitalise on the expanding market. And this rising level of competition could impede Ocado’s ability to capture and retain market share.
Having said that, its seemingly dominant position appears to lend the group a bit of a first-mover advantage. Therefore, I feel this is a risk worth taking for my portfolio.