The FTSE 250 can be neglected by institutional investors. That means high-quality companies can, at times, trade at levels that don’t reflect their underlying fundamentals. This is especially apparent within the growth sector. Rapidly growing companies may drop considerably almost overnight when they fall out of favour with these more prominent investors.

One such potential opportunity is Softcat (LSE: SCT), a UK-based technology infrastructure and service provider. The stock has struggled in 2022, down 34.2% and down over 46% from its peak in 2021. This fall is a prime example of how a company can go from achieving stellar share price growth year on year to falling rapidly. And it;s done this even when the fundamentals have remained mostly the same.

Underlying fundamentals

When looking at the underlying fundamentals of Softcat, I’m pleasantly surprised. It has very high levels of cash generation, sensible profit margins, and extremely high efficiency at generating income from invested capital. In addition, the company has low levels of debt and impressive earnings forecasts.

Turnover is forecast to increase by 20% next year, almost double the average growth over the last three years. Furthermore, bottom-line earnings per share (EPS) are expected to increase by 10.5%, a very encouraging sign. Both turnover and profit have increased consistently over the last seven years following the company listing on the market in 2015.

Dividend-earning potential

Another appealing element of Softcat is that the company is currently paying a dividend of 1.8%, which is forecast to reach 3.6% next year. This dividend has been paid consistently for the last six years and has grown for the previous five. This is quite unusual for a growth company. Any additional income is often used to fund expansion rather than pay dividends.

Future headwinds

Despite these appealing underlying fundamentals, it’s important to note that the company currently has a price-to-earnings (P/E) ratio of a high 24.6. This is forecast to fall to just over 22 next year. However, even after this decline, it will be around double the index forecast average of 10.2.

Furthermore, this elevated level is after the considerable share price falls that have taken place over the last year. This high P/E level could indicate that the company is overvalued, so subsequent falls could be justified. These may simply bring the share price closer to a more realistic level.

Nonetheless, I believe Softcat presents a promising opportunity to add a high-quality growth company at a significant discount. I’d like to add it to my portfolio once I get the necessary funds.

IT reseller and services provider

As a quick reminder, Softcat is an IT infrastructure specialist and reseller. It resells tech products such as hardware and software to businesses on behalf of tech giants that create products but don’t sell directly to retail. It also provides infrastructure, and other IT consultancy services to its customers.

So what’s happening with Softcat shares currently? Well, as I write, they’re trading for 1,452p. At this time last year, the stock was trading for 1,977p, which is a 26% drop over a 12-month period.

A FTSE 250 stock with risks

One of the first issues with Softcat shares is the current rather high valuation. On a price-to-earnings ratio of 27, is growth and future positive forecasts perhaps already priced in? On the other side of the coin, Warren Buffett once said, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” Could Softcat be worth this valuation as a quality business? I will consider fundamentals and other aspects to help me make my decision.

Next, the reseller market is saturated and competitive. Softcat is a major player in this market, however. Firms like Softcat, and its competitors, are vying to get the best deals from manufacturers and tie down their customers to multi-year agreements. The jostling for new customers and long-term agreements is pivotal to securing long-term revenue streams. If Softcat were to lose traction against a key competitor, it could have an impact on performance and returns.

The bull case and my verdict

So to the positives then. Firstly, I am buoyed by Softcat’s track record of performance and growth, although I am aware that past performance is not a guarantee of the future. Looking back, I can see that it has grown revenue and profit year over year for the past four years.

Good investor returns usually come with sustained performance growth. Softcat ticks this box for me too with regular dividend payments. Currently, the shares’ dividend yield stands at 3%. This is higher than the FTSE 250 average of just under 2%. I am conscious that dividends are never guaranteed and be cancelled at the discretion of the business, however.

Next, the current tech market and continued adoption of technology should benefit Softcat and its future performance. More businesses continue to adopt digital solutions and Softcat supports this with its offering and services.

Overall, I really like the look of Softcat shares and would be willing to buy some for my holdings. It has a good track record of performance and growth, boosts my passive income stream, and operates in a burgeoning market too. I believe it is a FTSE 250 that could boost my holdings for the long term.

What are UK growth stocks?

Growth stocks are shares of companies whose sales and earnings have grown — and look likely to continue — beyond the sector average, the market average, or both.

There are many factors that could set a UK growth stock apart from the pack. It might have a cutting-edge product that puts its competitors in the shade and delivers exceptional revenue growth. A business might also grow profits at breakneck pace thanks to a successful acquisition-based growth strategy.

Growth companies might also operate in an industry or sector that’s growing rapidly. Today this could, for example, apply to a UK stock that builds electric vehicles, provides cloud-based software that help people work remotely, or supplies healthcare services.

A stock could also have strong growth prospects based on where they operate. For instance, a bank that does business in an emerging market like Asia could generate stronger earnings growth than one in Europe. Faster economic and population growth in Asia, along with low financial product penetration, means that company sales could grow far more rapidly here.

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Top growth stocks in the UK

Let’s look at three UK stock market companies whose earnings have been rising strongly in recent years.

Games Workshop Group

Games Workshop Group is a giant in the realm of tabletop gaming. Thanks to popular platforms like Warhammer 40,000, it has built a large and loyal fanbase in its 40-plus years of existence. 

The quality of its miniatures, and the depth of the folklore it’s created around its gaming platforms, gives it a massive edge against its competitors. The business has also been developing its position in overseas markets and spent heavily on its e-commerce operation, too.

Games Workshop is currently exploring ways to boost the royalties it receives from licencing its intellectual property to mass media.

The big-selling Total War: Warhammer III video game launched in early 2022 illustrates the massive potential here. These steps into mass media could also considerably boost sales of Games Workshop’s miniatures, games, and books.

During the four fiscal years to May 2021, Games Workshop grew annual earnings per share at an average of 45%. City analysts expect expansion to have slowed to low single-digit percentages last year, and for the business to record a similar rise this year.

Water Intelligence

Water Intelligence helps to solve the problem of water leaks. Through its sophisticated equipment it detects, finds, and fixes leaks for residential, commercial, and municipal customers.

Preserving water is becoming increasingly important as fears over climate change and water scarcity balloon. So there is an increasing drive towards finding and repairing leaks to help preserve the precious commodity.

Water Intelligence operates in the US, UK, Canada, and Australia. Creaking infrastructure in these places is resulting in increased incidences of water loss and thus growing demand for the company’s services. Climate change is increasing the rate of such events as well by putting even more strain on pipes and other critical infrastructure.

It’s why earnings per share at this UK growth stock have risen at an average rate of 42% during the past five years. City analysts think, too, that earnings will grow an extra 9% in 2022.

Softcat

Softcat provides a broad spectrum of IT services to businesses. Profits here have risen strongly as the digital revolution has taken off. And its market-leading range of solutions has led to partnerships with some of the world’s largest tech companies. Its partners include Microsoft, Lenovo, Cisco, and Apple.

In the five years to July 2021, earnings per share rose at an average of 24% per year. City forecasters predict growth to cool to 9% in fiscal 2022.

This UK growth share offers investors a chance to capitalise on several fast-growing tech trends. For instance, Softcat designs cloud-based infrastructure for businesses and helps them improve their networks. Demand for such services is growing strongly as flexible working practices take off.

The company also provides cyber security solutions that can protect users from the growing threat of electronic attacks.

Are UK growth stocks right for you?

Essentially, a growth-based investment strategy is built around making profits from share price growth. This is quite different from income investing where individuals try to create wealth by receiving dividend payments.

Ideally one should try and invest in UK growth stocks as early in a company’s life as possible. Strong earnings growth feeds into electrifying share price growth, so the earlier you can get in the more you could potentially stand to gain.

This doesn’t mean that the window of opportunity is narrow, however. Some UK growth shares have been generating robust profits increases for many years and would appear in good shape to continue doing so.

Take rental equipment specialist Ashtead Group (LSE: AHT). Prior to the pandemic, the FTSE 100 share grew annual underlying earnings per share at an average of 30% between financial 2015 and 2019. This was thanks to an aggressive acquisition strategy designed to boost market share.

City analysts expect Ashtead’s earnings to keep growing solidly, too, as infrastructure spending in its core US market picks up and the firm remains committed to sales-boosting acquisitions. Profits have been rising again following initial Covid-19 disruption and analysts think earnings per share will rise 14% this fiscal year and 12% next year.

Ashtead shows how a successful UK growth stock has the potential to supercharge one’s returns over the long term. This business provided the biggest return on investment of any Footsie share during the 2010s, rising at a compound annual growth rate (CAGR) of 43% (according to data company Refinitiv).

But investors need to remember that many stocks with bright growth prospects trade on high price-to-earnings (P/E) ratios. And this can be extremely risky to investors.

It’s natural that companies with exceptional potential should command a premium. The problem is that these expensive shares can be sold off heavily when their growth potential begins to wane.

Tech stocks, for example, tend to attract sky-high valuations. And they have been some of the worst-performing stock market constituents in 2022 as the global economy has struggled. 

Expensive US tech stocks Netflix, Meta, and Amazon have been among the most famous casualties this year on signs of slowing growth. In the UK, technology-focused growth stocks like IT services provider dotDigital Group and video game developer Team17 Group have also fallen sharply as earnings have come under the spotlight. Both businesses traded on P/E ratios above 40 times around the start of the year.

Buying UK growth stocks doesn’t always yield instant results. Some firms take time to deliver strong growth (or any at all) at the beginning as they focus on increasing revenues at the expense of profitability. Here you are buying potential rather than tangible rewards. More established growth shares, however, can offer the best of both worlds.

Royston Wild owns shares in Games Workshop Group and Ashtead Group.

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Capital gains

First, I pay no capital gains tax on my ISA holdings.The general capital gains tax-free allowance is £12,300, but there are growing discussions about changing this. The ability to sell as many stocks as I like in an ISA without having to worry about payments tax is a huge plus, especially when I begin drawing from my equities in retirement.

I find my Stocks and Shares ISA particularly useful for investing in growth stocks, which have high potential for capital appreciation.

One FTSE 250 growth stock on my watchlist is Softcat (LSE: SCT).

This IT infrastructure provider offers software licensing, security and cloud services to a range of public and private sector organisations. The Softcat share price is down 24% in 2022, but it looks oversold to me. After all, it has generated 66 consecutive quarters of year-on-year growth in gross invoiced income and profit.

I believe one reason for the sell-off is a global component shortage. This has translated into an order backlog for the group’s hardware division, affecting 30-40% of Softcat’s annual gross invoiced income. There are still no signs that this situation will improve.

Nonetheless, the business anticipates its full-year results will beat previous estimates. I see a particularly bright future for the firm’s service-based offerings and cybersecurity solutions. This is a rapidly growing market and Softcat is cementing its position as a leading player. I’d buy it today.

Dividends

The tax-free benefit I enjoy by investing in a Stocks and Shares ISA also extends to the treatment of dividends, which aren’t taxed either. The general annual dividend allowance outside of an ISA has been frozen at £2,000 for years and there’s a risk it could be scrapped one day.

I buy dividend stocks in my ISA with a view to building a substantial passive income portfolio.

One FTSE 100 dividend stock I’m looking at in July is DS Smith (LSE: SMDS).

The packaging multinational has a healthy 5.4% dividend yield. Granted, this can partly be explained by a 34% decline in the share price over 52 weeks, but I’m encouraged by the recent 24% dividend hike for the past year after the business substantially beat earnings expectations.

The stock faces inflation risks from rising energy costs. Despite this, it has combated challenges by passing on higher prices to customers. I believe it can continue as packaging represents a tiny fraction of the overall cost when a consumer makes an online purchase.

Strong US growth and a partnership with Amazon are also attractive features. I’d buy.

Compound earnings

The second reason I love investing in a Stocks and Shares ISA is to boost my compound earnings. I plan to keep my investments in my ISA for years while consistently reinvesting the dividends.

This effectively allows me to earn ‘interest on the interest’ on both my dividends and any appreciation in the value of my investments without adverse tax implications. Consequently, I view my ISA as an invaluable tool to build my wealth over time.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

Airtel Africa 

What it does: Airtel Africa provides telecommunications and mobile money services in sub-Saharan Africa. 

By Royston Wild. Demand for telecoms services remains largely unchanged during all points of the economic cycle. Therefore, it’s my belief that Airtel Africa (LSE: AAF) could be a top growth stock for June as inflation rises and recessionary risks grow.

City analysts think Airtel’s earnings will rise 12% in the current financial year (to March 2023). They think profits growth will accelerate to 16% next year too. 

And so at today’s prices, the FTSE 100 share trades on a bargain-basement forward price-to-earnings (P/E) ratio of 8.4 times. 

I don’t just think Airtel’s a great buy for these uncertain times, though. Its focus on the fast-growing markets of Africa provides it with exceptional long-term revenue opportunities. Product penetration remains low across both the telecoms and financial services industries in its markets. Meanwhile, personal wealth levels are rocketing and population levels are rising strongly too. 

Pre-tax profits at Airtel leapt 75.6% in the financial year to March, the latest financials this month showed. These came in at a forecast-beating $1.2bn. I expect the Footsie business to continue impressing as its customer base balloons. 

Royston Wild does not own shares in Airtel Africa. 

Rolls-Royce

What it does: Rolls-Royce is a multinational civil aerospace, defence, and power systems company based in the UK.

By Dylan Hood: The Rolls-Royce (LSE:RR) share price has struggled ever since the pandemic first hit. However, the firm recently announced a trading update that contained some encouraging metrics. For FY2021, gross margins increased 23.4% compared to FY2020, leaving the company profitable for the first time since the pandemic’s onset over two years ago.

The firm is also making encouraging steps in its plan to rebuild its balance sheet, and has committed to achieving positive free cash flow by Q3 of 2022.

Investors have already been reacting positively to this news, with the price of Rolls-Royce shares climbing over 6% throughout May. While still under the £1 mark, I believe now could be a great time to open a position in my portfolio for future growth.

Dylan Hood does not own shares in Rolls-Royce.

Softcat

What it does: Softcat provides IT infrastructure solutions. Its areas of expertise include cloud computing, data, and cybersecurity.

By Edward Sheldon, CFA. Softcat (LSE: SCT) shares have experienced a significant pullback since September 2021 and I think this has presented an attractive buying opportunity.

A recent trading update showed that the tech company still has plenty of momentum. Indeed, the group advised that for the quarter ended 30 April 2022, it generated double-digit year-on-year growth in revenue, gross profit, and operating profit. It added that it now expects operating profit for the full year to be “slightly ahead” of its previous expectations.

Meanwhile, after the recent pullback, the stock’s valuation now seems quite reasonable. At present, the forward-looking P/E ratio here is about 27, which is not high in my view, given the company’s track record, growth potential, high level of profitability, and strong balance sheet.

Of course, if future growth is disappointing, the stock could underperform. All things considered, however, I like SCT’s long-term risk/reward profile.

Edward Sheldon owns shares in Softcat.

Ceres Power

What it does: The Sussex-headquartered firm is a world leader in metal-supported solid oxide fuel cell technology.

By Dr. James Fox. The hydrogen industry has enormous potential and that’s why I’m keeping a close eye on Ceres Power (LSE:CWR).

The UK-based fuel cell developer is yet to turn a profit. However, revenue is growing. Ceres reported a 44% increase in revenue and other operating income in 2021, reaching £31.7m.

As such, it currently has a price-to-sales revenue of around 40. That’s not cheap, but equally this also reflects the sector’s potential.

Ceres licences its energy technology to individual manufacturers, reducing costs relating to the building of manufacturing facilities. It also has lucrative partnerships with Bosch and Doosan.

Doosan is preparing for a soft launch of its 10kW SOFC product this year and will open a 79,200sq metre plant in 2024. With production being scaled up, 2022 could be a transformative year for the firm.

And with the share price falling over the past 12 months, it looks like a good time to add this stock to my portfolio. 

James Fox does not own shares in Ceres Power.

Petrofac

What it does: Petrofac designs, builds, manages and maintains oil, gas, and renewable infrastructure internationally. 

By Michelle Freeman. The recent windfall tax announcement may have made headlines for the oil & gas giants like BP and Shell, but it also created an instant demand for oil & gas infrastructure services. 

Why? Because the ability to offset investment spend against the new levy means that right now, plenty of UK-based projects will have been given a huge business case boost.  

But getting the go-ahead is only part of the battle. They’ll also need to be able to spend the money – and that’s going to lead to a spike in demand for the next few years at least. 

Petrofac (LSE:PFC) is one of a few companies that are well positioned to benefit from this upturn – alongside the wider trend globally as infrastructure spend returns with the high oil and gas prices. 

The best part for me, though: it’s not a one-trick pony, having also diversified nicely with its complementary renewables infrastructure arm. Win-win! 

Michelle Freeman does not own shares in Petrofac.

Howden Joinery Group

What it does: Howden Joinery is the UK’s largest vertically integrated trade kitchen supplier within the home improvement industry.

By Zaven Boyrazian. Renovating or constructing new kitchens may not sound like a lucrative investment opportunity. Yet Howden Joinery (LSE:HWDN) seems to disprove that. Looking at its latest trading update, the firm delivered an impressive 21.8% revenue growth – almost twice what it’s historically achieved. And that’s during its low season.

With its peak trading period just around the corner, the stock looks primed for a bounce-back after its recent tumble in the general market turmoil. There are valid fears of a slowdown risk due to rising inflation and a consumer spending crunch. However, given management continues to pursue its expansion plans in the UK and France, there appears to be a high degree of internal confidence that I like to see.

From what I can see, Howden Joinery is delivering its fastest growth in years, yet its share price is trading near a 52-week low. That, to me, looks like a fantastic buying opportunity for my portfolio.

Zaven Boyrazian does not own shares in Howden Joinery Group.

Hikma Pharmaceuticals 

What it does: Hikma develops, manufactures and markets a wide range of high-quality generic, branded and in-licensed pharmaceutical products. 

By G A Chester. Hikma Pharmaceuticals (LSE: HIK) has been out of favour for a while. Its shares are down around 30% over the last 12 months. 

The latest knock to market sentiment came in May. Hikma downgraded its guidance on the expected performance of its generics division in 2022. 

Management’s previous guidance was for revenue growth of 8%-10% over 2021’s revenue of $820m and an operating margin of 24%-25%.The new guidance lowered revenue to $710m-$750m and the operating margin to around 20%. 

The reason was a change in expectations of the launch timing of a generic medicine, shifting its revenue and profit contribution from the second half of 2022 to the first half of 2023. 

I don’t think this damages Hikma’s long-term growth story. The recent resignation of chief executive Siggi Olafsson — to pursue other opportunities — adds further uncertainty. But I reckon the weak share price represents a great opportunity for me. 

G A Chester does not own shares in Hikma Pharmaceuticals 

Greencore

What it does: FTSE 250 firm Greencore supplies convenience foods to retailers and food-to-go outlets all over the UK.

By Roland Head. Convenience food specialist Greencore (LSE: GNC) is bouncing back strongly from the pandemic. The firm reported sales up 34% to £771m during the half year to 25 March, thanks to “strong growth in food to go”.

I think the company’s growth is set to continue. City forecasts suggest Greencore’s pre-tax profit will hit £63.5m in the 2022 financial year and £80.6m next year.

The business is expanding beyond its historic strength in sandwiches to offer foods such as salads, sushi, ready meals and soups and sauces. Over time, I think this strategy is likely to support steady long-term growth.

Of course, larger retailers such as supermarkets are tough customers. They’re likely to keep pressure on Greencore’s prices and margins.

Today, Greencore shares trade on 12 times 2022 forecast earnings, falling to a forecast P/E of nine for 2023. That looks good value to me.

Roland Head does not own shares in Greencore.

Plus500 

What it does: Plus500 provides online trading services in Contracts for Difference (CFDs) across a range of asset classes.

By Charlie Carman. Benefitting from the rise in retail trading activity over the pandemic, the Plus500 (LSE: PLUS) share price has soared nearly 90% since the start of the UK’s first lockdown in March 2020.

The FTSE 250 fintech company’s latest quarterly results revealed impressive 33% year-on-year increases in revenue and EBITDA. Admittedly, Plus500 experienced a 35% decline in active customers compared to Q1, 2021. However, average revenue per user rocketed by 104%, which sufficiently offsets any potential concerns for me.

Plus500 continues to expand its global operations. The Israel-based business recently obtained a new licence in Estonia, improving its core product offering in European markets. In addition, its acquisition of EZ Invest Securities signalled an entry into the substantial Japanese retail trading market.

It seems elevated stock market volatility is here to stay for the time being. I believe Plus500 shares should perform well in this macroeconomic environment. I’d buy in June.

Charlie Carman does not own shares in Plus500. 

Dr. Martens

What it does: Dr. Martens is a luxury brand that sells footwear. Its boots are a cultural staple and its best selling item.

By John Choong – With stagnating retail sales data over the last quarter, I was originally bearish about Dr. Martens (LSE: DOCS)’ prospects. However, its stellar FY 2022 results blew my expectations out of the water. As a result, its share price surged by 18%.

Being a luxury brand, Dr. Martens has managed to pass its costs onto customers without negatively impacting its top and bottom lines. In fact, its profit margins saw an increase to 19.9% for the year, along with strong sales figures. This has pushed its free cash flow in the right direction too.

Additionally, management expects a strong FY23, citing “huge headroom for growth in key markets”, as well as a strong wholesale order book with fixed factory prices. The latter allows the firm to hedge against inflationary pressures, which is crucial given the macroeconomic environment. 

Therefore, I’m optimistic about the future of the company, and will be looking to buy shares in the near future.

John Choong has no position in Dr. Martens

Wizz Air

What it does: Wizz Air is a Hungary-based airline, specialising in the operation of short-haul flights around Europe, North Africa, and the Middle East.

By Andrew Woods. The improvement in the firm’s passenger numbers in recent months is quite staggering. For May, Wizz Air (LSE:WIZZ) flew 4.1m people, with a load factor of 84.2%. This was up from 3.6m and 83.4% in April. These passenger figures for May and April also equate to 390% and 542% increases, compared to the same periods last year.

As pandemic travel restrictions are relaxed, the airline is expecting a very busy summer. It has been recruiting cabin crew at pace to try and keep up with demand, but many flights have already been cancelled. This disruption could subside once the business hires more employees.

Wizz Air recently signed a memorandum of understanding with the Saudi Arabian government to explore the potential development of routes throughout the country. This would greatly increase the company’s presence in the Middle East.

In addition, a cash balance of €1.3bn suggests that the firm is in decent financial shape and well positioned for returning to higher capacity in the coming months.

Andrew Woods does not own shares in Wizz Air.

UK shares at the forefront of digital solutions

Kainos (LSE:KNOS) provides digital technology solutions to help organisations and their people to work smarter, faster, and better. The software firm can count many government departments among its customers, including the NHS. As well as the public sector, it also provides services to many private sector clients across multiple industries.

The Kainos share price looks good value for money to me right now. The shares are trading for 1,303p currently, but were 12% higher this time last year. More tellingly, the shares are down over 30% year to date. I’m considering buying the dip.

One of the primary risks to Kainos’s growth is the spectre of cyber security threats. Any breach could lead to huge financial and even legal consequences, especially as it helps those government departments with day to day operations.

Kainos shares pay a dividend with a yield of just under 2%. UK shares that help me build a passive income stream are an attractive prospect. And this one has a consistent track record of performance with clear evidence of growing revenue and profit consistently.

Most importantly for me, Kainos operates in a growth sector. The rise in technology adoption has led to lucrative opportunities for businesses like this.

Pick #2

Softcat (LSE:SCT) is an IT infrastructure specialist that sells the products of tech giants who don’t sell directly to businesses. It resells these products and services to public and private sector businesses across cyber security, IT intelligence, hybrid infrastructure and digital workspace tools divisions.

Softcat shares are trading for 1,513p as I write. They’re down 20% over a 12-month period from 1,897p. It’s one of a number of UK stocks in the tech sector that have seen share prices drop.

The valuation still looks a bit high to me with a price-to-earnings ratio of close to 29. If performance and growth ahead were to be affected, the shares could struggle. Furthermore, the IT reseller market is large and saturated. This competition could affect performance and returns.

Like Kainos, Softcat operates in a growth sector with numerous opportunities it can capitalise upon to boost performance and its bottom line. Its growth to date has been excellent and has been underpinned by consistent improving performance year-on-year. I do understand the past is not a guarantee of the future, however.

As a bonus, Softcat shares pay a dividend with a yield of close to 3%, which would help me boost my passive income stream.

What I’m doing now

I’d add Kainos and Softcat shares to my holdings at current levels. The primary factor is that both businesses operate in a growth sector. Furthermore, both pay dividends to boost my passive income stream.

I believe both of these stocks are top UK shares that would enhance my portfolio. And the recent stock market correction has thrown up many opportunities, so I will continue hunting as well.

I’m currently looking for the best FTSE 250 shares to buy. And I reckon I’ve found some great ones. This mid-cap index holds some excellent companies. They’re often small enough to provide ample growth potential but large enough to be relatively stable. I’d describe it as a sweet spot.

I’d buy IT

One FTSE 250 share that I reckon provides decent long-term prospects is IT provider Softcat (LSE:SCT). Its share price has fallen by 13% over the past year, despite solid business performance by the group. Allow me to explain further.

In its half-year results, the company delivered strong profit growth and cash generation. Profit per customer rose by 12.4% as more of Softcat’s customers emerged from the impacts of the pandemic. The results beat management expectations and the board believes that results for the full year will be ahead of their previous estimates.

I’m impressed it performed so well despite component shortages and the supply chain constraints that plagued many companies.

Can it beat the competition?

Bear in mind that competition is intense in this industry. It’s highly fragmented with many small players. That said, Softcat has a history of gaining market share and differentiates itself with excellent customer service.

Overall, I’d say that the future looks rosy. More growth could come from ever-more businesses migrating to the cloud and the growing need for enhanced cybersecurity. That’s why I’d buy these shares for my new ISA allowance.

A FTSE 250 top pick

My next FTSE 250 top pick is Safestore Holdings. This self-storage company has been a remarkable performer over the past decade. Its shares have risen by 29% per year on average. That’s enough to turn a £1,000 investment into almost £12,500.

But can these mid-cap shares continue to perform? I believe they can. Safestore makes money by buying large buildings, splitting them up into sections and renting them out to those that need to store things.

It grows its earnings by expanding its property portfolio and letting out empty space in existing buildings. It’s a business model that serves it well and sales have steadily risen by 10% per year since 2015.

Points to consider

A few points to consider, however. Borrowing costs to finance new properties could increase if interest rates rise over the coming months and years.

If the UK economy tips into a recession, it could reduce the number of home-movers. That said, this group accounts for just 10%-15% of new business.

Overall though, I particularly like that it’s a profitable business with tremendous cash flow. I’m also currently looking for investments that could beat the effects of rising inflation and I reckon Safestore makes a good candidate.

In addition to renting out space, it should also benefit from rising property values over time. It ticks many boxes for me and I’d consider adding it to my ISA this month.

There are not many of these opportunities on the London market. It takes a lot of time to uncover these world-beating companies, but I believe I have been able to isolate two potential opportunities. 

With that in mind, here are the two UK shares I would buy for growth today. 

UK shares for growth

The first company on my list is information technology (IT) infrastructure solutions provider Softcat (LSE: SCT). This business has grown at breakneck speed over the past few years. Since 2016 its earnings per share have grown at a compound annual rate of 24%.

As the world becomes more digitised, I expect the demand for this company’s services will continue to increase. As long as management continues to invest in the organisation’s capabilities and expand its footprint, I think the business can rise to the challenge.

That said, this is quite a competitive market. Softcat will need to keep investing and putting its customers first if the enterprise is going to remain a leader in this market. 

Even after taking this challenge into account, I believe it is one of the best UK shares to buy for growth. Considering its position in the market and potential for expansion over the next five to 10 years, I think the stock is undervalued. 

Building growth

I would also acquire Travis Perkins (LSE: TPK) for my portfolio. This distributor of building materials and products across the UK is not the only company in the sector, but it does have one of the most extensive footprints. This footprint gives the corporation substantial economies of scale. That means it can provide services and products to customers at a lower cost than many of its competitors. 

The business is currently having to deal with several challenges. These include the supply chain crisis and rising materials costs. These headwinds could have an impact on the company’s growth in the next few years as it works through the issues. 

Nevertheless, I believe Travis has the qualities required to pull through this uncertainty. It could even emerge stronger on the other side if its competitors start to struggle.

City analysts are forecasting a 40% expansion in the enterprise’s profits this year as it capitalises on the UK’s booming construction market.

Based on these projections, the shares are selling a forward price-to-earnings (P/E) multiple of 12.7. I think that looks cheap compared to the company’s growth potential. This is why it sits at the top of my list of the best UK shares to buy for growth today.

While there’s no guarantee that the Footsie will continue to outperform the S&P 500 going forward, I have a bullish view on a lot of UK shares right now. With that in mind, here’s a look at two British stocks I’d buy today.

A FTSE 100 company with long-term growth potential

First up is FTSE 100 company Prudential (LSE: PRU). It’s a leading insurance company that’s now focused predominantly on Asian and African markets. This stock looks quite cheap at the moment. Currently, it has a forward-looking P/E ratio of just 14.

Prudential’s pivot towards Asia and Africa appears to be paying off. For the first half of 2021, for example, adjusted operating profit from continuing operations jumped 19% at constant currency to $1,571m.

Looking ahead, I see considerable growth potential here. Asia and Africa are untapped markets when it comes to savings and insurance solutions. Prudential believes that if it can execute its strategy successfully, it can achieve long-term double-digit growth in embedded value per share.

One issue that investors should be aware of with Prudential is that CEO Mike Wells recently announced his retirement. Wells has been instrumental in pivoting the company towards higher-growth markets, so his retirement adds a bit of uncertainty. This doesn’t concern me too much, however, as I’d expect the board to find a suitable replacement.

It’s worth pointing out that a number of brokers are quite bullish on PRU right now. Recently, Goldman Sachs initiated coverage of the stock with a ‘buy’ rating and target price of 1,761p. Meanwhile, Jefferies recently raised its target price to 1,800p from 1,750p. This reinforces my view that there’s a lot of investment appeal here at present.

A FTSE 250 star at the heart of a powerful trend 

Another UK stock I like the look of right now is Softcat (LSE: SCT), which is a member of the FTSE 250 index. It provides IT solutions to businesses and public sector organisations across the UK. This stock has had a significant pullback recently and now offers more value than it did in the past.

SCT lies at the heart of one of the most dominant trends on the planet today and that’s digital transformation. All over the UK, businesses and government organisations are scrambling to get up-to-speed digitally. They’re moving their operations to the cloud, they’re investing in cybersecurity software, and they’re seeking out data analytics solutions. This is benefiting Softcat, which can provide all of these things for customers, and much more.

A look at Softcat’s financials reveals that this is a high-quality company. Not only has the group generated strong revenue growth over the last five years (72%), but it has also generated high returns on capital employed. Additionally, it has raised its dividend significantly over the period. Overall, the financials here are very impressive, to my mind.

The valuation here does add a little bit of risk. At present, SCT has a forward-looking P/E ratio of about 32. This doesn’t leave a huge margin of safety. If growth slows down, the stock could underperform.

I’d be comfortable buying the stock at that valuation, however. To my mind, this growth stock deserves a premium valuation.

With this in mind, here are three quality companies now trading near 52-week lows.

Fevertree Drinks

Late in January, one-time market darling Fevertree Drinks (LSE: FEVR) announced that cost headwinds would be more significant than expected, meaning that margins at the mixer specialist are likely to “remain broadly flat in 2022“.

This announcement succeeded in taking away most of the gains made in the second half of 2021. Fevertree’s share price now stands close to its 52-week low. So is now the time to buy the stock?

Well, a valuation of almost 49 times forecast earnings suggests not. Anything this high implies/demands a company should deliver perfectly on its strategy. That’s not easy considering the ‘interesting’ economic outlook right now.

Then again, this is not a stock that’s ever likely to trade at a bargain price. Prior to the pandemic, returns on capital — a key metric for star fund manager Terry Smith — were seriously good. Fevertree’s finances also look solid with hardly any debt on the balance sheet. There’s lots of ‘white space’ left for the company to grow into and it already possesses a great brand. 

I think there’s a good chance of this company recovering strongly, in time. For now however, it stays on my watchlist.

Softcat

IT solutions provider Softcat (LSE: SCT) is next up. The FTSE 250 member’s share price is also getting close to its 52-week low (1,419p, set last April). Considering its stellar track record, this selling pressure grabs my attention.

Like Fevertree, Softcat has a history of generating seriously good returns on the money it invests in the business. It’s clearly benefited hugely from the increased demand for support from clients over the pandemic too. 

That’s not to say Softcat is without risk. Margins, while decent for its industry, are average relative to the rest of the market. The stock also trades on a P/E of 33. That’s pricey, considering that earnings aren’t expected to grow much at all this year. 

Given that the stock could fall further if the rotation into value stocks continues in 2022, Softcat only makes it to my watchlist, for now. 

Games Workshop

A final growth share that’s let off steam has been the fantasy figurine-maker Games Workshop (LSE: GAW). The shares are now down over 20% year-to-date and only slightly above the 52-week low. Product release delays and increasing costs are partly to blame.

Of the three mentioned here, this is the stock I’d be most likely to buy today. While fixating on valuation is never a good idea, a forward P/E of 22 looks very reasonable, considering its dominance of this niche market. Again, its finances are robust compared to many other companies.

Yes, there’s a risk the share price could dip lower if margins continue to be squeezed. As such, it may pay for me to buy in tranches if I end up pulling the trigger.

There was a time when Games Workshop was knocking on the door of the FTSE 100. Assuming it is able to successfully push its Warhammer franchise over the next few years via games and films, I’m confident this could still happen.