To me, a growth share is backed by a business that’s posting big annual increases in earnings each year. And it will often have a high valuation to match. But there’s often a volatile share price to contend with.

Impressive figures

When valuations are high, so are the stakes for investors. And any slip in the growth numbers can affect sentiment, causing shares to plunge. But fast movements can occur to the upside as well. And if I can bag a true growth leader, the long-term performance of the investment can be worth the discomfort of holding. However, happy outcomes aren’t certain with any stock. 

Nevertheless, Netcall posted some impressive figures today with its full-year results report. The company provides software products and services and it’s growing its cloud-based offering fast. The firm’s Liberty software platform helps businesses to create “a leaner, more customer-centric organisation”. And customers include around two-thirds of the NHS Acute Health Trusts and companies such as Legal and General, Lloyds Banking Group, Santander, and Aon.

Despite all the scary general economic headlines lately, Netcall experienced “continued strong trading throughout the year”. The company’s trading year ended on 30 June. And year-on-year revenue came in 12% higher with a 30% rise in revenue from cloud services.

The improvements in turnover dropped down to the bottom line with a 44% uplift in adjusted earnings per share. And there was a strong cash performance as well with net funds rising by 97% to £13.4m.

A growing market opportunity

Chief executive Henrik Bang reckons Netcall has a “significant and growing market opportunity”. And that arises because there’s an increasing trend of organisations implementing digital strategies and business models. 

The company’s growth rates are on the rise. And Bang said the trading momentum has continued into the start of the new trading year. There’s a growing order book and higher recurring revenues. And the directors have “confidence” in Netcall’s continued success.

The future for the business appears to be in the cloud. There’s “significant” momentum from the firm’s cloud services revenue stream. And it now accounts for around 90% of new product bookings.

But although earnings are ramping up, it hasn’t always been like that. Prior to 2020, the company posted several years of declining earnings. But It seems that Netcall has found its growth mojo now. And the move to cloud-based services appears to be a big driver of the improved situation.

A full valuation

However, strong ongoing growth is never certain or guaranteed with any business. Nevertheless, City analysts have pencilled in an uplift in earnings of around 33% for the current trading year to June 2023. And with the share price near 81p, the forward-looking earning multiple is around 32.

That valuation looks well up with events, to me. So, there’s no margin for error. If Netcall experiences lower rates of growth ahead, I could lose money on my shares. Nevertheless, I like the growth story. And I’m keen to hold some of the shares for the long term to see what happens.

But it still leaves a few whose shares are priced at under 100p, with updates coming our way in October.

Software tech

Netcall (LSE: NET) is due to release full-year results on 5 October. The software tech stock has climbed strongly over five years. But in the past 12 months it’s been pretty flat, currently standing at 80p.

Netcall is only making modest profits, and the shares are on a fairly lofty valuation. We’re looking at a forecast price-to-earnings (P/E) ratio of over 30. But with analysts forecasting solid earnings growth, that could come down.

In July’s trading update, the company said it expects to post a 12% rise in revenue, with a gain of approximately 20% in adjusted EBITDA. In particular, Netcall’s cloud offerings should see a revenue increase of 30%.

We’re clearly looking at a growth candidate here, and the shares are not obviously priced cheaply. But I reckon it could be one to watch.

Space investments

Have you ever fancied investing in space technology? I’ve always thought it a bit fanciful, and seriously risky. If I ever went for it, ideally I’d like to spread the risk by going for an investment trust.

And there is one, Seraphim Space Investment Trust (LSE: SSIT), which describes itself as “the world’s first listed SpaceTech investment company“. It will release its full year results on 17 October.

The shares haven’t done brilliantly over the last 12 months, dropping 50%. With a share price of 61p and a market-cap of a little below £150m, Seraphim is pretty small as investment trusts go.

The company’s July update was really all about assets and acquisitions, with net assets of £250m at 31 March.

We have no idea of current net asset value (NAV), so it’s hard to evaluate the share price today. But we should have a NAV update with October’s results. I’d definitely need to see that before making any decisions.

Gold miner

Finally, down to Earth and digging for gold. I’m talking about Centamin (LSE: CEY), on a share price of 86p.

It’s declined by 5% in the past 12 months, and by 40% over five years. Meanwhile, gold is up around 40% over five years as investors seek its safety.

A gold miner is not just a play on the gold price itself. Providing the cost of production is low enough, a miner can make profits even when gold is falling, and that doesn’t happen if we buy the metal itself.

That’s where I think the risk lies. In the first half, Centamin declared a cash cost of production of $931 per ounce produced. But its all-in sustaining costs reached $1,446 per ounce sold.

That might be squeezing margins a bit tightly. Before I’d make any decision, I’d probably wait for full-year results. But a Q3 report due on 20 October should help.

I’ve been looking for stocks to buy. And one recent addition to my portfolio is waste-to-product company Renewi (LSE: RWI).

With the share price near 785p, the FTSE Small Cap business has a market capitalisation of around £622m. And that’s well above my self-imposed lower limit of £100m.

Room to grow

I like investing in small-cap companies because they often have more room to grow over time. However, I’m not keen on the extra risks and volatility that often come with the tiniest stock market constituents.

On 14 July, Renewi released an upbeat first-quarter trading statement. In the three months to 30 June, revenue and earnings were ahead of the prior year just as the directors had previously expected.  

One risk is that the business has a history of lumpy earnings with rises in some years and declines in others. And City analysts expect that pattern to continue. There’s also a fair amount of debt on the balance sheet.

However, revenue looks set to continue its steady rise. And I reckon the firm operates in an attractive sector, given the environmental concerns of the modern world.

Meanwhile, the forward-looking earnings multiple is running around 10 for the trading year to March 2024. I think that valuation looks fair rather than cheap.

At the other end of the scale, I bought some shares in the FTSE 100 banking and financial services company HSBC (LSE: HSBA). With the share price near 517p, the market capitalisation is around £105bn.

Earnings look set to surge

Bank stocks can act as early predictors of recessions and downturns. Their share prices are often among the first to plunge. However, HSBC has been range-bound for most of 2022. And my bet is the price would probably have already plunged if it was going to in the current economic environment.

Earnings have been holding up well. And after a single-digit decline in 2022, City analysts predict a strong double-digit advance in 2023.

It’s always possible for any company to miss its estimates. But I’m hopeful that the market will look more favourably upon HSBC if the economic and geopolitical storm clouds clear in the years ahead. Meanwhile, the valuation looks attractive to me with the dividend yield running just above 5% for the current year.

The third recent addition to my share account is software specialist Netcall (LSE: NET). With the share price near 85p, the market capitalisation is around £131m. And the business can be found in the FTSE AIM ALL-SHARE index.

Fast growth, racy valuation

This is a fast-growing proposition with a racy valuation to match. City analysts expect earnings to shoot up by more than 30% in the current trading year to June 2023. And the forward-looking earnings multiple is running near 34.

I accept that a high valuation brings additional risks. If the company runs into an operational setback and misses its estimates, the share price could plunge. However, on 20 July, Netcall issued a trading update with the headline: “Strong demand driving results above FY22 market expectations”.

There are no guarantees of a positive long-term investment outcome with any of these companies. But, for the time being, things look positive. 

My plan is to hold the stocks for years as the market recovers and operational progress unfolds in each enterprise.

Long live the King

Revenues at Kingspan Group (LSE: KGP) are climbing strongly amid growing concerns over the climate emergency. The building products business — a big player when it comes to insulation materials — saw sales leap 44% in the nine months to September, latest financials showed.

Kingspan has a huge opportunity to make big profits as interest in foam insulation rises. Analysts at BCC Research think the global market will be worth $29.5bn by 2025, up more than $7bn over a five-year period. I like Kingspan’s wide geographic footprint that should allow it to capitalise fully on this fast-growing industry too. The penny stock operates in more than 70 countries.

A word of warning however. Demand for Kingspan’s product could take a hit if incentive schemes to encourage people to insulate their homes end. Indeed, the UK government is said to be considering rolling back a £1bn levy that helps fund home insulation work.

A penny stock for the pandemic

Concerns over the Covid-19 crisis have dialled down several notches in recent weeks. Worries about the ferocity of the Omicron mutation have dropped on a raft of positive medical data. But it’s far too early to claim that the pandemic is over.

It’s why I still believe buying UK healthcare shares like BATM Advanced Communications (LSE: BVC) is a good idea. And news in recent days that a new Omicron variant is under investigation illustrates why. It seems that living alongside Covid-19 will be the new norm, as many scientists now predict. So I expect the sort of Covid-19 testing equipment that BATM manufactures to remain in high demand.

I am concerned by the amount of competition in the Covid-19 testing space. But I think the potential size of the market of the long term still makes the penny stock an attractive buy today. Besides, the steps it is taking to expand into new geographies also gives it an opportunity to capture significant sales (its RAPiDgen antigen test was approved for sale in Russia just before Christmas).

Call me up

Strong recent trading over at Netcall (LSE: NET) is encouraging me to give this tech firm a close look too. The business — which makes software that allows companies to automate their operations — saw revenues soar 10% in 2021, predominantly as demand for its cloud-based services took off. The rapid pace at which businesses are digitalising their operations is yielding big returns at companies like this.

My main concern with buying Netcall shares is the company’s high valuation. Today, the penny stock trades on a forward P/E ratio of 43 times. It’s the sort of rating that could prompt a sharp share price reversal if signs of explosive profits growth appear in danger. That said, it’s my opinion that Netcall merits such a premium, given the investment businesses are increasingly making to automate their processes.

That’s a very nice 110% gain, and the shares have even been a bit higher. The price reached 89p at the end of September before dropping back a little. So what’s happened? Is there more to come, and am I too late to get in on this growth story?

The dream 12 months kicked off just ahead of full-year results released on 13 October 2020, and the shares have kept on up ever since. But move forward a year to 6 October with results time again, and we see the opposite’s happening. Since the market closed the day before, the Netcall share price has lost 6%.

Revenue rose by 8% to £27.2m, in line with expectations. And, perhaps more significantly, cloud business revenue increased 26% to £8.3m. Adjusted EBITDA is up 21% to £5.34m, and pre-tax profit up 98% to £0.99m. And the dividend’s also up 48% to 0.37p.

Netcall ended the year with cash of £14.5m (up 14%), against borrowings of £6.86m (up 1.6%). Many a penny stock shareholder would be envious of that.

Cloud-based transition

Chief executive Henrik Bang said: “We are pleased with the solid performance for the year driven by demand for our cloud-based Liberty offering, resulting in 26% growth in cloud business revenue and a significant increase in profitability as Netcall continues the transition to a cloud business mode.”

Might the transition word suggest reasons for hesitancy? I mean, we do often see it used to mean something’s gone wrong, and a company needs to make some changes sharpish. So what is being transitioned?

Netcall provides software for companies to automate their process and their customer services. It does seem to be popular, and the cloud transition thing just looks like a natural technical progression to me. So I’d say the shift to this cloud-based Liberty platform looks good.

The company reported adjusted diluted EPS of 1.43p (up 47%). On that basis, the current Netcall share price gives us a P/E of 56. And that seems a bit high.

Perhaps the push beyond penny stock status won’t be here just yet. Still, if we should get another year like this one and another 47% EPS growth, the P/E would come down to 38. And for what I see as solid growth potential, that would start to look reasonable.

Penny stock surge?

But Netcall shares have had false starts several times over the past five years. And though the price has more than doubled over the past year, it’s only about 5% higher than the peak it reached in 2018. Earnings in 2018 were higher than this year too, and took a dive by June 2019. Maybe there’s more to this transition thing after all.

I do think I’m seeing attractive growth potential here, and I suspect I’ll lose out buy not buying. But the current valuation, coupled with the volatility in both earnings and share prices, means I don’t see enough safety margin.

I’ll wait and see if the earnings growth of the past couple of years proves sustainable.

That said, there’s nothing wrong with me buying a quality stock I think might rise in value in the short term, provided I’d be happy to hold it for several years at least. Over this sort of timescale there’s a good chance the company could still make me terrific returns, even if its share price sinks in the near term.

With this in mind, here are two top UK shares I’m thinking of buying in October.

The magic touch

Profits at Bloomsbury Publishing (LSE: BMY) soared during 2020 as Covid-19 lockdowns prompted a surge in reading. It’d be a mistake to think this surge was a flash in the pan though. The publisher upgraded its full-year guidance back in June, thanks to continued strong trading. And it subsequently announced at its AGM that sales rocketed 28% in the four months to June.

I think the UK share could release another set of impressive financials when half-year results come out on 27 October. In fact, I’d buy Bloomsbury shares with a view to holding them for a long, long time. Its Consumer division, led by the evergreen Harry Potter franchise, continues to go from strength to strength. And the company’s recent foray into the field of academic publishing is already paying off handsomely too.

I’m also encouraged by Bloomsbury’s hunger for acquisitions, a strategy that recently saw it snap up Head of Zeus and Red Globe Press.

However, an M&A-led growth strategy leaves a company in danger of overpaying for an asset, perhaps even acquiring what ultimately proves to be a dud.

But I’m encouraged by Bloomsbury’s track record on this front, though past performance is, of course, no guarantee of future success.

A top UK tech share to buy

I think Netcall (LSE: NET) could be another great UK share to buy in October. The tech business has already rocketed 120% in value over the past 12 months. I think more gains could be recorded once full-year results are unpacked on 6 October.

Netcall provides software that helps companies automate their processes and engage their customers more effectively. It’s therefore in great shape to exploit the increased amount of spending by businesses on digitalising their operations. Demand for Netcall’s cloud-based product is particularly strong and recurring revenue here shot 16% higher in the 12 months to June.

Netcall hiked its full-year expectations when it released its interims in February. I think the firm’s continued strong momentum could prompt further upgrades in the weeks and months ahead too. The company drew attention to its “strong pipeline and… substantial market opportunity” last time out.

I’d buy this share, even though a stuttering economic recovery could damage earnings in the near term.

Compared to blue chips, penny shares can be riskier investments, but they can also be better growth investments. That is why I like to keep a mix of both blue chip stocks and penny stocks in my portfolio. 

Here are two companies I am looking to add to my portfolio at some point in the future and would invest at least £5k in. 

Penny stocks I would buy 

The first company on my list is Netcall (LSE: NET). This is a software provider that offers intelligent automation and customer engagement software. Netcall has experienced rapid growth like many other tech businesses over the past 18 months. 

Based on the firm’s targets, City analysts expect the enterprise to report sales of around £27m for fiscal 2021, up 17.4% from the level reported for the 2019 financial year. 

The company confirmed this in a recent trading update. The update also added that cloud computing is now Netcall’s largest division. Recurring revenue from this arm expanded 26% for the year to the end of June 2021.

Netcall also informed the market that the company has a robust order backlog. I reckon this will help support growth in the months and years ahead. 

I think the company’s recent growth highlights its potential. That is why I would buy Netcall for my portfolio of penny shares. 

However, while I believe the company has potential, I am also aware that with revenues of just £27m, it is a tiny business in the world of technology.

Competitors like Microsoft generate tens of billions of dollars in profits and can spend enormous sums on research and development. It may never be able to compete with these enterprises, which will always be a risk to Netcall’s growth potential. 

Rising demand 

As well as Netcall, I would also buy Finncap (LSE: FCAP) for my penny stock portfolio. The investment adviser and broker has more than doubled in size since 2016, and I think it has a lot of potential as the demand for wealth management services expands. 

As the wealth of the middle class in the UK grows, the demand for wealth management services is increasing. The sector is also experiencing consolidation. Costs are rising across the industry, forcing companies into each other’s arms as they try and push down costs and achieve operating synergies. 

This is both a challenge and an opportunity for the group. A larger peer could acquire Finncap. Or it could be squashed by competitors who can offer more for less. 

Despite this obvious risk, I am impressed by Finncap’s growth track record. With £5m of net cash on the balance sheet, I think the firm is well funded for its next stage of growth, which could begin to unfold during the next few years. 

These are the reasons I would buy the broker for my portfolio of penny stocks right now. 

A ‘heavyweight’ appointment

The valuation looked toppy before, but today’s 85p puts the company on a forward price-to-earnings ratio of around 16.5 for 2019 when measured against City analysts’ forecasts for an almost 50% upsurge in earnings that year. At some point, the shares will stop falling, and I reckon yesterday’s news that a new Chief Financial Officer (CFO) has been appointed could turn the share price around.

Since the tragic passing of the previous long-serving CFO, Phillip J Rasmussen, earlier in the year, the directors have been searching for a high-calibre replacement. The new man will be Tim Pullen who is currently CFO of ARM Limited– the ex-FTSE 100 technology company that was taken over by Japan’s Softbank Group in 2016. Mr Pullen will take over his new desk at IQE in early 2019 after working out his notice with ARM. Executive chairman and interim CFO Dr Godfrey Ainsworth has been holding the financial fort and will continue until the handover is complete.

The appointment strikes me as ‘heavyweight’ and a great coup for the firm. I’m optimistic that Tim Pullen’s experience in the sector will combine with his ability to help drive the company’s ambitions. At the very least, this appointment puts an end to the uncertainty surrounding the issue, and the stock market will like that.

A move capturing fast-track growth

I’m also keen on Netcall (LSE: NET), which provides what it describes as “low-code and customer engagement software.” Today’s full-year figures show revenue up 32% compared to last year and adjusted, diluted earnings per share 5% higher. Fast-growing annualised cloud revenue rose a healthy 321% to make up 22% of total revenue. However, last year’s net cash position of almost £13m has been wiped out because of the August acquisition of MatsSoft Limited, described as “a leading cloud-based low-code software provider.” The firm reported net debt this year of £0.74m.

Netcall is working hard to integrate its big acquisition, which is aimed at increasing the firm’s cloud presence. The directors said in the acquisition announcement that the move opens up access to “the fast-growing low-code market,” which organisations in the public and private sector are adopting. Netcall aims to offer the service both to new and existing customers.

I think there is a good chance that Netcall has just moved into the fast lane with this acquisition. Chief executive Henrik Bang said in today’s report that he has “increased confidence” in the firm’s growth prospects. He pointed to the large size of recently announced “multimillion pound ” low-code contract wins and the “significant increase” in annualised cloud revenue as evidence of the scale of the firm’s potential opportunity to grow. I think the change in the set-up resulting from this acquisition makes Netcall an attractive share right now.

I was once a big fan of the likes of Imperial Brands (LSE: IMB) thanks to the formidable brand power of cartons like John Player Special and West, and the FTSE 100 firm’s drive to shut down scores of underperforming labels in favour of prioritising these terrific revenues-driving brands. I myself used to own shares in the London business up until fairly recently.

But the rising headwinds in developing and emerging economies alike, from public smoking bans to the introduction of plain packaging, has caused me to revise my previously-bullish perspective. Indeed, the US Food and Drug Administration’s plans to possibly cut the levels of nicotine in cigarettes to non-addictive levels, which was declared in August, was the final straw for me.

Fighting or flailing?

The industry is fighting a fierce rearguard action to stop sales falling off a cliff, underlined by the vast amounts manufacturers across the sector are ploughing into the e-cigarette sector. Although a fast-growing segment, the revenues created by the likes of Imperial Tobacco’s blu brand remains a very small slice of the overall pie. And besides, the vaping sector is also coming under attack from politicians on health grounds, undermining the long-term sales opportunities of these brand new technologies.

These pressures have seen Imperial Brands’ share value decline 16% over the past six months alone, with analysts warning that earnings growth should keep on slowing. A 9% bottom-line advance is predicted for the year to September 2017, down from 17% last year, and this is expected to cool further to 4% in fiscal 2018.

Many investors may still be drawn in by a very-cheap forward P/E ratio of 11.9 times for the forthcoming financial year, not to mention an abundant 5.3% dividend yield. But the cloudy long-term outlook for the entire tobacco sector is likely to encourage me to keep away from the likes of Imperial Brands.

Another scary sell

I am also underwhelmed by the investment prospects of Netcall (LSE: NET), even if the company’s share price has bounced on Tuesday after the release of fresh trading details. The Hertfordshire firm was last 6% higher from the start-of-week close.

The company, which provides customer engagement solutions to business, advised that revenues fell to £16.2m during the 12 months to June 2017 from £16.6m a year earlier, reflecting its decision to switch to a cloud-based model. As a result, adjusted EBITDA rose just 1% year-on-year to £4.5m.

However, chief executive Henrik Bang said that he was “pleased with progress in the year which was in line with our strategy of positioning the business towards the high-growth cloud market.” I for one will not be investing in the firm any time soon, I’m afraid.

Despite today’s bounce, Netcall still deals at a 24% discount to levels seen at the start of August. And the company still trades on an elevated forward P/E ratio of 24.5 times, created by City predictions of a 2% earnings rise in the current year. In my opinion this could prompt further waves of selling activity should its restructuring package result in prolonged sales slippage.

Cohort’s adjusted pre-tax profit rose by 21% to £14.5m last year, but the group’s statutory pre-tax profit fell by 81% to £1m. These figures translate into adjusted earnings per share of 27.9p and statutory earnings per share of 9.1p.

If you’re a shareholder in the group, you may wonder which of these figures you should rely on. Having looked at the figures, I’m inclined to accept the adjustments, most of which relate to acquisitions and genuine one-off costs. On that basis, today’s figures give Cohort a P/E of 15. The dividend has been increased by 18% to 7.1p, giving a trailing yield of 1.7%.

One of the reasons I’m prepared to accept the firm’s adjusted earnings is that management has a fairly good record of making successful acquisitions. Since 2011, sales have risen by 72%, while earnings per share have risen by an average of about 20% each year. During this time, the group hasn’t issued many new shares and has maintained a net cash balance.

Although revenue was flat at £112m last year, the firm’s order book grew by 18% to £136.5m. Sales and profit growth can often be uneven at this type of business, as the timing of contract wins isn’t always predictable.

Analysts remain bullish on this stock and expect the group’s adjusted earnings to rise by at least 10% this year, putting the shares on a forecast P/E of about 14. I’m encouraged by the strong order book and believe Cohort’s long-term growth potential is attractive.

Pumping out cash

Software group Netcall (LSE: NET) makes customer relationship and workforce management systems. This £94m business is increasingly focused on selling subscription services which provide a high level of recurring revenue.

During the first half of this year, the order book rose by 14% to £16.6m, while annualised recurring revenue rose by 8% to £11.3m. That represents about 65% of the group’s forecast revenue for the current year.

Pre-tax profit rose by 17% to £0.92m during the first half, lifting earnings per share by 7% to 0.6p. However, the biggest attraction for me is the group’s apparent ability to generate cash.

Netcall’s free cash flow was £1.7m during the first half of this year, more than 25% higher than during the same period last year. This strong performance meant that despite an increase in development expenditure, net cash rose by £0.5m to £14.6m.

The company’s strong first-half performance is expected to continue. Broker forecasts indicate that earnings per share should increase by 63% to 2.15p for the year ending 30 June. A bumper dividend of 3.8p per share is expected, giving a yield of 5.6%. Although this level of payout may not be sustainable, I think it’s good discipline for management to return surplus cash to shareholders in this way.

Netcall seems a solid business to me. The only catch is that the firm’s shares are already priced for success, with a 2018 forecast P/E of 28. In my view, shareholders should definitely continue to hold, as more growth may be in the pipeline. But new investors may want to wait for a dip before buying.