Some growth shares I see as having promising long-term prospects are now available to me at what I see as an attractive price. So if I had spare funds to invest in October, here are two I would happily add to my portfolio.

S4 Capital

The digital media agency S4 Capital (LSE: SFOR) has had a horrible 2022. The shares are down 50% since the start of the year.

But the outlook for these growth shares looks compelling to me. This month, S4 published its interim results. Net revenue grew 28% compared to the same period last year. The business says it expects full-year net revenue growth of 25%. It also expects to increase the number of accounts with annual billings of $20m or higher, from 6 to 20 by the end of 2024.

Growth shares with a digital focus

The cost of staffing up to service accounts is a threat to profitability, so I am glad the company is taking steps to control rising staff costs. A recession often leads advertisers to cut their budgets. I do see that as a risk to revenue growth at S4. However, the company seems to have done a good job so far building the size of its existing accounts, as well as winning new ones.

I expect digital advertising to slow down less than traditional media during a recession. That could be good news for S4 with its purely digital focus. Its heavy US presence means a strengthening dollar may actually help results at the business, which reports in pounds.

B&M

Is discount retailer B&M (LSE: BME) really a growth stock? After all, B&M saw both revenues and post-tax profits fall last year. In the first quarter of this year, sales again fell 2.2% compared to the same period last year, athough the trend improved during the quarter.

While the past year has shown business slowing, the longer-term trajectory at the company has been one of strong growth. Last year’s profits, for example, were still more than double what they had been just three years previously.

I see continued growth drivers for B&M. As the recession bites, I expect more shoppers to become increasingly cost conscious. That plays to the strengths of a discounter like B&M. I also expect a slowdown in eating out and costly entertainment, with more people opting to stay at home. With its range of homewares, food and drinks, I think that could boost sales at B&M.

Inflation remains a risk to profits. The company’s focus on sharp pricing can make it difficult for B&M to pass such increases on to customers in full.

But with the prospect of buoyant demand, possible growth in its customer base and a proven model, I expect the B&M growth story in coming years to be strong. Despite that, these growth shares have tumbled 50% in the past year.

Cranswick

When I think of growth industries, I might think of silicon chips, digital apps or electric vehicles.

But what about chicken sandwiches? It might not be an obviously dynamic area, but meat products specialist Cranswick (LSE: CWK) has actually cooked up a very impressive growth recipe. Its revenues have risen at a compound annual rate of 10% over the past five years, with adjusted profit before tax showing 12.6% compound annual growth in the period.

That has helped the company reward shareholders. The Cranswick dividend jumped by an average 11.4% per year over the period, on a compound basis. Even better, the firm has now increased its dividend annually for over 30 years without a break.  

Yet the Cranswick share price today is 20% below where it stood a year ago. I think it now looks like good value for my portfolio, given the firm’s growth potential. It trades on a price-to-earnings ratio beneath 15.

There are risks ahead, of course. Cost inflation and wage increases could eat into profits. Tightening consumer spending might lead some shoppers to shun pricier snacks, hurting revenues. But I see Cranswick as a well-run business with a proven ability to grow. That is why I count it among growth shares to buy now for my portfolio.

S4 Capital

With interim results due tomorrow at digital ad agency network S4 Capital (LSE: SFOR), shareholders including myself will be looking for better news than we have had so far in 2022. The year’s list of woes have ranged from delayed results to reduced expectations of profitability.

Those disappointments help explain why the shares have lost half their value this year. They are 63% cheaper now than they were a year ago.

But is that share price tumble really merited? Although I see staff costs threatening profitability as a risk, the growth story at S4 remains exceptional. The company has said it expects to double revenues and gross profits within three years. Acquisitions could add further growth on top of that.

The share price has been hammered, but I feel that has obscured the strong long-term prospects the company enjoys. Tomorrow’s results will be a useful point to see whether it has continued to make good progress. I recently increased my position ahead of the results.

Growth shares to buy

From meat processing to digital marketing, these two companies sound like they are very far apart.

But both have business models I think can generate increased sales in years to come. Their company valuations are both discounted from where they stood a year ago. I see them both as growth shares to buy now for my portfolio.

That makes these two growth shares look like possible bargains for my portfolio, although I recognise the steep price falls party reflect significant risks the two firms face.

boohoo

Online retailer boohoo (LSE: BOO) may know a lot about fashion – but its own shares have clearly fallen out of fashion. An 84% reduction over the past year means the share price is now more form-fitting than even the keenest fan would want.

Boohoo has faced a number of problems, some of its own making. It continues to be dogged by previous complaints about conditions in its supply chain, although the firm has worked hard to improve its reputation.

A bigger worry both for boohoo and rivals is the risk that a recession could lead to shoppers spending less on clothes. Meanwhile, cost inflation threatens profit margins.

But it is not all doom and gloom at boohoo. I continue to see an investment case here. The firm also owns well-known brands such as Debenhams and Karen Millen, which could help it maintain shopper attraction.

It has proven in the past that its business model can make sizeable profits. It has a large customer base and deep buying expertise. I see the potential for ongoing sales growth. Sales last year grew by 14%.

The boohoo share price fall also looks overdone to me. I would happily add these growth shares to my portfolio while they trade for pennies.

S4 Capital

Another company that has seen its share price plummet in the past year is digital media agency S4 Capital (LSE: SFOR).

The company was set up by WPP founder Sir Martin Sorrell, who has proven his ability to build fast-growing enterprises in advertising. But it has come a cropper this year, for several reasons.

Repeated delays in publishing accounts shook investor confidence, even though when they were published they contained no especially nasty shocks. On top of that, rapid expansion has added costs that threaten profit margins.

Are these teething problems or signs of bigger challenges for the company? The S4 Capital share price has tumbled 84% in a year, suggesting many investors have fundamentally reassessed the company’s worth.

But although I see this year as a tough one for the firm, it has nonetheless built a massive digital advertising operation in just a few years. I think that could be more valuable than today’s share price suggests.

Growth shares with growing pains

Even after lowering its guidance in July, S4 expects 25% like-for-like gross profit and net revenue growth. That is substantial and I think there could be more to come in future, as the company’s acquisitions fully bed-in and the total digital marketing market grows.

Spiralling costs remain a risk to profits and I think it may take years for the damage done to investor confidence this year to be repaired. But, accepting the risks, I would be happy to invest £250 into S4 Capital shares today.

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

GSK 

What it does: GSK is one of the world’s top 10 largest pharmaceuticals producers thanks to drugs like Tivicay and Advair. 

By Royston Wild] 

The GSK (LSE: GSK) share price has plummeted during the past month amidst fears over stinging legal action in the US. It is believed a swathe of lawsuits related to its Zantac heartburn treatment could cost it billions of dollars. 

However, I believe the threat of such colossal damages is now well baked into GSK’s share price. I’d buy the FTSE 100 business owing to its exceptional defensive qualities. The essential nature of its operations should help profits to remain robust even as the global economy toils. 

In fact, latest financials show that the pharma giant is actually going from strength to strength. Total sales rose by almost a fifth between April and June, to £6.9bn. 

City analysts have been upgrading their profits forecasts following the news. They now think GSK’s earnings will rise 10% year on year in 2022 and 8% next year, too. 

This means that today GSK trades on a forward P/E ratio of just 11.4 times. I think this represents super value for money for this growth stock. 

Royston Wild does not own shares in GSK. 

Melrose Industries

What it does: Melrose Industries is a holdings business that seeks to acquire and improve struggling engineering firms.

By Zaven Boyrazian. Melrose Industries (LSE:MRO) is a holdings company. The group acquires underperforming engineering businesses intending to turn them around before selling them on at a higher price. But the engineering sector, especially aerospace, hasn’t exactly had a great time since early 2020.

Fortunately, now that the travel sector is ramping back up, Melrose’s future looks much brighter. The company has an excellent track record of delivering successful turnarounds. And assuming it hits its margin targets, earnings should be set to swell over the coming years.

There is an undesirable £1.7bn of debt equivalents on the balance sheet that is likely to become more expensive to service as interest rates get hiked. But with just over £470m of cash in its war chest, I see no immediate solvency risk.

That’s why I believe Melrose stock has some solid growth potential as it recovers to its former glory.

Zaven Boyrazian owns shares in Melrose Industries.

JD Sports Fashion

What it does: JD Sports Fashion sells sports fashion and outdoor footwear and apparel. 

By Paul Summers: I can understand retail stocks not being popular with investors right now. Even so, the near-halving of growth stock JD Sports Fashion (LSE: JD)’s share price in 2022 feels a bit overdone. 

Yes, not many people will be loading up on pricey trainers in the current environment. And, yes, being forced to sell Footasylum for less than half the price it paid to acquire it due to concerns from the UK’s competition watchdog won’t have boosted investor confidence. New CEO Regis Schultz has his work cut out.

Still, I reckon there’s a good brand here. A price-to-earnings (P/E) ratio of nine could also prove excellent value if JD meets its own conservative earnings estimates when half-year numbers are announced on 22 September. Encouragingly, there’s no interest from short sellers as things stand.

I suspect JD will deliver the goods again once confidence returns.

Paul Summers has no position in JD Sports Fashion

Sage

What it does: Sage is a leading provider of cloud-based accounting and payroll solutions for small- and mid-sized businesses.

By Edward Sheldon, CFA. My top growth stock is Sage (LSE: SGE). To my mind, it offers growth (and quality) at a reasonable price.

Sage’s most recent trading update, for the nine months to 30 June 2022, showed that the company is generating solid growth right now. For the period, recurring revenue was up 9% to £1,330m while organic total revenue was up 6% to £1,412m. Looking ahead, the company said that it now expects organic recurring revenue growth for this financial year to be towards the top end of its guidance range of 8-9%.

As for the valuation, Sage currently trades on a price-to-earnings (P/E) of around 26 (using next financial year’s projected earnings). That is higher than the average FTSE 100 P/E ratio. However, I don’t think it’s excessive given that Sage is a high-quality software company with recurring revenues.

Of course, this company is not without risk. One issue to consider is that new competitors are popping up. Overall, however, I think the stock has considerable appeal right now.

Edward Sheldon owns shares in Sage.

Rolls-Royce Holdings

What it does: Rolls-Royce is a British-based multinational aerospace and defence company that’s been struggling since the pandemic.

By Dylan Hood. Rolls-Royce (LSE:RR) shares have struggled to gain any real momentum since the onset of the pandemic. Currently sitting at 80p, they have fallen 37% year-to-date and 30% over the past 12 months. However, earlier this year, Rolls released results which highlighted the firm had turned a profit for the first time since its £4bn loss in 2020.

In addition to this, its more recent H1 2022 results revealed a record order intake for Power Systems and a momentous £1.1bn improvement to cashflows. The firm is also leading the charge in small to medium nuclear reactor technology and has already signed contracts with governments around the world to implement this technology after their approval (expected in 2024).

Finally, as the threat of the pandemic becomes less prevalent, flying hours will continue to increase. Already in 2022, they have climbed 42% compared to 2021. Rolls makes most of its money servicing jet engines, so this is another big plus.

Dylan Hood does not own shares in Rolls-Royce.

Watches of Switzerland

What it does: Watches of Switzerland is a British luxury retail group that specialises in selling Swiss watches and jewellery. It also offers insurance and repair services.

By John Choong. With inflation expected to continue heading upwards, I’m turning my attention to luxury goods. This is because luxury goods tend to have inelastic demand and are catered to a niche market that either benefits from high inflation or isn’t very much affected by it.

This was evident in Watches of Switzerland’s (LSE: WOSG) latest trading update which showed positive numbers. The FTSE 250 firm saw its revenue grow by 31% while many other retailers continue to suffer declines on a year-on-year basis. The outlook given by management was also generally positive as it expects to ends it financial year with 17% to 21% revenue growth, while expanding its offices, showing confidence that demand for its products are still hot.

While revenue growth slowed exponentially from its pandemic highs, I think a reasonable price-to-earnings (P/E) ratio of 19 and an average price target of £13.37 makes this stock a lucrative one for my portfolio. As such, I’ll be looking to add Watches of Switzerland to my portfolio in the near future.

John Choong has no position in Watches of Switzerland

S4 Capital

What it does: S4 Capital is a digital marketing agency network.

By Christopher Ruane. It has been a brutal few months for shareholders in S4 Capital (LSE: SFOR), with the growth shares trading for less than a fifth of where they stood a year ago.

Revenue growth remains strong and I think that even in an economic downturn, demand for digital marketing should stay high. The problem for S4 is its business model. Growing costs threaten to delay the path to profitability. Internal control systems have been found wanting, leading to delays in publishing results.

Many investors have abandoned the shares. But directors have been buying and I think the basic business model remains promising. There is work to be done in scaling quickly without letting costs balloon, as well as restoring investor confidence. I expect chairman Sir Martin Sorrell to address those concerns fast.

Meanwhile, I think the huge fall in the S4 Capital share price presents a buying opportunity for my portfolio.

Christopher Ruane owns shares in S4 Capital.

The London Stock Exchange Group

What it does: the company runs the London Stock Exchange. It also provides data and clearing services via its subsidiaries.

By Stephen Wright. In my view, The London Stock Exchange Group (LSE:LSEG) is one of the most interesting companies in the FTSE 100. I was very impressed with its most recent trading update and that’s why the stock is my top UK growth stock for September.

The company has three major segments – capital markets, data and analytics, and clearing services. Each of these reported solid results. As a result, profits this year are 21% higher than they were a year ago.

Until recently, I’ve found the London Stock Exchange Group difficult to value. Its recent acquisition of Refiniitv made its accounts a little complicated.

More recently, though, things have settled down. I think that the stock is trading at a price-to-earnings (P/E) ratio of around 20 and I think that it’s good value at those levels.

Stephen Wright does not own shares in The London Stock Exchange Group.

Harbour Energy

What it does: Harbour Energy is a UK-based oil production firm that operates across the North Sea, Asia, and Central America.

By Andrew Woods. In the past month, the shares in Harbour Energy (LSE:HBR) are up 25%. Recently, the company has been benefiting from higher oil prices, with Brent crude currently trading above $100 per barrel.

For the six months to 30 June, the business reported that pre-tax profits grew to $1.5bn, up from $120m for the same period in 2021. What’s more, its guidance range for full-year production increased from between 195,000 to 210,000 barrels, to between 200,000 to 210,000 barrels.

Furthermore, the firm stated that it was embarking on a $300m share buyback scheme, up $100m from previous announcements.

Financially, the company has a cash balance just under £600m, and total debt of £3bn. This debt would be something I’d like to see fall in coming months, because it appears to be quite large.

Overall, though, production is solid, and the broader economic situation seems to be favouring the company, hence it may have scope to grow.

Andrew Woods has no position in Harbour Energy.

At the time of writing this on Thursday morning, the shares have tumbled 42% since the market opened after the digital ad agency network issued a profit warning. They are now 81% lower than they were a year ago.

As a long-term bull on the company’s prospects and S4 shareholder, could this be a great buying opportunity for me as a long-term investor? Or should I throw in the towel?

More bad news

The profit warning comes after the company reviewed its figures for the first half of the year. From a revenue perspective, things continue to look good. The business still expects full-year like-for-like revenue growth of 25%. Many companies would love that level of expansion.

But the earnings picture is much less rosy. S4 lowered its guidance for full-year earnings, before interest, tax, depreciation and amortisation (EBITDA), to around £120m. That is roughly 23-27% lower than analysts’ expectations. The company did not guide on basic earnings, which I regard as a more concrete metric than EBITDA.

Behind the pared-down expectations are spiralling costs. The company specifically mentioned staff and hiring costs in its Content division. S4 has now initiated what it called “a brake on hiring” as well as tightening cost controls.

Repeated disappointment

If this was the first bad news this year, the S4 Capital share price may not have plunged as much as it did this morning. But it already damaged its reputation badly with the fiasco of postponing its annual results and then delaying them once more the afternoon before the rescheduled due date.

At that point the company specifically mentioned a plan to tighten controls in its Content practice as well as more generally. The Content division accounts for around two thirds of S4’s business so it no surprise that problems may arise sooner here than in smaller divisions. But today’s profit warning concerns me as I am starting to question how tightly the Content division is being run.

S4 has grown at breakneck speed, largely through acquisitions. That model worked for chairman Sir Martin Sorrell at WPP but it appears to be making S4 a tough business to manage. On top of that, the management team’s credibility is now very damaged, in my view. That could scare many investors away.

My move on the S4 Capital share price

For now, I will hang onto my S4 shares as I still believe in the long-term story. The revenue growth remains strong. If the ultimate potential of the company is fulfilled, today’s price could come to be seen as a real bargain a few years from now.

However, things could also just go from bad to worse. Despite S4’s potential, increasingly I do not like the reality. It may take years for the company to rebuild its reputation. The viability of its business model is also increasingly difficult to measure. For now, at least, I will not be buying any more shares.

Growth challenges

The company in question is digital media agency S4 Capital (LSE: SFOR). The name may not be very familiar, but the company was founded by Sir Martin Sorrell. He was responsible for building advertising giant WPP from scratch. Now he is following a similar path in the digital media world. But he is applying some lessons from his decades at WPP. For example, the way S4 pays for acquisitions is different to the old WPP method, as Sir Martin tries hard to keep founders actively engaged after their companies are acquired.

The growth story here has been very strong, with S4 consistently posting double-digit growth rates. On Thursday the company affirmed its guidance of 25% annual like-for-like gross profit and net revenue growth this year. On top of that, acquisitions could add more revenue and profit streams. So why has this growth share collapsed?

The S4 share price was already moving far down from its November highs, as part of a wider fall tech valuations. But the firm shot itself in the foot by delaying its annual results, then postponing them again just hours before the rescheduled date. That badly damaged confidence in the company’s management among many shareholders, including myself.

The road back

I think that negative investor sentiment continues to dog the S4 share price.

However, the company obviously recognises the reputational damage it has suffered. Sir Martin described the results delay that happened on his watch as “unacceptable”. The firm says it has “already strengthened the control, pricing and estimating functions” in its content practice, the main source of audit problems that caused the results to be late. It is working across the whole company to try and stop any such delay in future.

Meanwhile, I think the underlying investment case for this UK growth share remains strong. A recession could lead advertisers to cut budgets. But digital advertising remains a massive spending area and one I think is set to benefit from long-term growth. S4 has established a reputation for high-quality work, broad geographic reach, and a combination of services that helps clients avoid having to deal with lots of agencies in different markets. I think that adds up to a compelling growth story for the coming decade.

I bought this UK growth share

When the S4 Capital share price crashed after announcing the results delay, I did nothing. I chose not to buy any more of these tech shares until the results were published.

That has since happened: I think the company has learnt its lesson and meanwhile the growth story continues to look strong. But I can now buy the shares much cheaper than before, to hold for years to come. That is why I have been adding more S4 Capital shares to my portfolio.

Here are three growth shares I would consider buying for it now.

Alphabet

Over the past year, the share price of Google parent Alphabet (NASDAQ: GOOG) has grown just 1%. Meanwhile, the business continues to perform strongly and now trades on a price-to-earnings (P/E) ratio of 21.

That may not sound cheap, but I think the growth story at Alphabet remains compelling. Over the past five years, revenues at the firm grew at a compound annual growth rate of 23%. Earnings growth was even stronger in the same period, coming in at an annual compound rate of 31%.

My Stocks and Shares ISA move

That would be good for any company, I feel, but what makes its more impressive is that Alphabet was starting from a large baseline. The company recorded over $258bn in revenues last year (it reports in dollars, of course, but in GBP it is £200bn, at current exchange rates). Double-digit percentage growth for a company with huge revenues is a major feat.

I think the growth at Alphabet reflects its massive user base and the way the company is integrated into their daily lives. I expect that to keep powering growth. A slowdown in ad spending could hurt profits, but I see the current Alphabet share price as an attractive buying opportunity for my Stocks and Shares ISA.

Netflix

The streaming giant Netflix (NASDAQ: NFLX) has a lower P/E ratio than Alphabet, at 17. Its shares have crashed 60% in the past year.

That reflects concerns about the ability of the company to retain customers and add new ones at the sorts of prices it needs to cover its costly productions. I do see customer churn as a risk to both revenues and profits. But I think the sell-off in these growth shares has been overdone, which is why I added the company to my Stocks and Shares ISA. Like Alphabet, Netflix benefits from a large installed customer base. It has expertise in monetising its content, so I think it can figure out the right pricing to stop too many customers cancelling their subscriptions.

Its content library gives it a unique competitive advantage. Over time, the company can spend less money developing new shows and rely more on a growing archive. That could be good for profits.

S4 Capital

The S4 Capital (LSE: SFOR) share price has taken a battering this year too, falling 49%.

That reflects concerns about its delayed results. But the company has now published audited results and promised to improve its financial controls. Meanwhile, the digital media agency group posted massive growth last year. On a like-for-like basis, billings grew 67%, revenue was up 52% and adjusted basic earnings per share increased 65%.

One ongoing concern I have is costs. S4 fell to a pre-tax loss last year, while margins shrank. If that continues, it could hurt profits. But I think the growth story here remains compelling. Now that the audited results have been published, I am considering taking advantage of ongoing share price weakness to buy more S4 Capital for my Stocks and Shares ISA.

Stephen Wright: Rightmove

My top growth stock for May is Rightmove. Its business generates around £226m in operating income using just £12m in fixed assets, and its dominant market position is protected by a strong network effect.

As a result, earnings have increased by 200% over the last decade, pushed along by share buybacks. It also has an extremely strong balance sheet with more cash than debt. I’ve been admiring this company for a while, and I’m excited to have finally had the share price reach a level that I’m happy buying it at.

Stephen Wright owns shares in Rightmove.

Royston Wild: Hochschild Mining

I think there’s a good chance precious metals prices could soar as worries over global growth and soaring inflation increase. For this reason, I’d buy silver miner Hochschild Mining (LSE: HOC) for my portfolio in May. 

Mounting concerns over possible stagflation could boost silver prices in the near term. And over the longer term, they could increase as improving economic conditions likely supercharge industrial demand for the dual-role grey metal. 

City analysts think Hochschild’s earnings will rise 8% in 2022. They believe the company’s bottom line will improve 26% in 2023, too. 

Current projections leave the South American mining stock looking quite cheap as well. Today, Hochschild trades on a price-to-earnings (P/E) ratio of just 9 times for 2022. FTSE 100-quoted silver miner Fresnillo’s forward multiple sits at double this level. 

Royston Wild does not own shares in Hochschild Mining or Fresnillo. 

Edward Sheldon: Calnex Solutions

My top growth stock this month is Calnex Solutions (LSE: CLX). It specialises in testing and measurement services for telecommunication networks.

Calnex has generated strong growth in recent years on the back of the rollout of 5G network technology and looking ahead, I think it’s likely to continue doing so. Recently, the group advised that it was seeing “high demand” for its testing solutions and that its order book was sitting at “record levels”. It added that the board was confident it can deliver “significant, sustainable growth” over the coming years.

It’s worth pointing out that Calnex shares have had a good run recently, so they could experience a pullback in the short term. In the long term, however, I think they could go much higher as the company grows its revenues and profits.

Edward Sheldon owns shares in Calnex Solutions.

G A Chester: Impax Asset Management 

My rule of thumb for asset managers is they may offer value if priced at less than 3% of their assets under management (AUM). 

The last time I looked at fast-growing sustainable investing pioneer Impax Asset Management (LSE: IPX), its shares were trading at over £11. The market capitalisation was £1.5bn, meaning it was priced at 4.7% of its £32.2bn AUM. 

As I’m writing, the shares are below £7, the market cap is £910m, and it’s priced at 2.4% of £38bn AUM. Despite market and fund-outflow risks, I think Impax now offers value. Its half-year results are scheduled for 1 June. 

G A Chester has no position in Impax Asset Management. 

Zaven Boyrazian: Focusrite

Focusrite (LSE:TUNE) is a global audio equipment manufacturer targeting music industry professionals and hobbyists at home. Despite live events being cancelled during the pandemic, demand for its award-winning products continued to rise as artists shifted to working from home.

Music festivals are now back in business, restoring a portion of lost income. Yet recent supply chain disruptions have led to a slowdown in sales, sending the share price in the wrong direction.

However, the nature of the problem is ultimately short term. And with management’s long-term strategy uncompromised, the recent tumble looks to me like a fantastic buying opportunity for my portfolio.

Zaven Boyrazian does not own shares in Focusrite.

Christopher Ruane:  S4 Capital

Digital ad agency group S4 Capital (LSE: SFOR) saw its shares fall sharply after 2021 results were delayed twice. That has made me more nervous about governance at the company. But boss Sir Martin Sorrell has promised to fix that. I expect him to deliver.

Meanwhile, the unaudited results showed very high sales growth. S4 says 2022 has started ahead of already strong expectations. Any further governance slips are a risk. But the selloff looks overdone to me at this point. I am strongly considering topping up my position.

Christopher Ruane owns shares in S4 Capital.

John Choong: Rolls-Royce

Rolls-Royce (LSE: RR) recently posted a trading update, and it showed quite a bit of promise in recovery. Despite its flawed balance sheet, the firm is making some progress as it estimates to achieve positive free cash flow by Q3 this year.

Its other segments in defence, power systems, and new markets also posted encouraging developments, as orders continued to increase. Rolls-Royce is also set to grow its revenue in the low-to-mid single digit percentage range. So, with the share price below £1, this could be an opportunity to grab shares on the cheap and capitalise on the potential rebound.

John Choong has no position in any of the shares mentioned.

Paul Summers: AJ Bell

The awful performance of stock markets combined with the rise in the cost of living has hit trading at investment platforms such as AJ Bell (LSE: AJB). However, this is just the sort of quality growth stock I’d want to load up on in anticipation of a big recovery. 

A P/E of 25 isn’t cheap but it’s a far more palatable valuation than a year or so ago. This company consistently generates great margins and returns on capital.

With more people recognising the importance of planning for retirement, AJ Bell is one to tuck away, in my view.

Paul Summers has no position in AJ Bell

Roland Head: Standard Chartered

A FTSE 100 bank might seem an odd choice for a growth stock. But shares in Asia-focused Standard Chartered (LSE: STAN) look very cheap to me when compared with City growth forecasts.

Analysts’ estimates suggest StanChart’s earnings could rise by 15% this year and by 30% in 2023. But despite this bullish outlook, the bank’s shares still trade at a near-50% discount to their 1,120p book value.

Property losses in China and recession risks are a concern. But if CEO Bill Winters can deliver on Standard Chartered’s turnaround potential, I think the shares could perform very well.

Roland Head has no position in Standard Chartered.

However, I was concerned that its full-year 2021 results had been delayed (twice) and I wanted to wait until they were published before deciding whether the stock was worth buying for my portfolio.

Fast forward to today, and the 2021 results have been published. So let’s take a look.

Unpacking S4 Capital’s 2021 results

Overall, S4’s full-year results were pretty good, in my view. For the year, billings amounted to £1.3bn, up 99% on a reported basis and 67% ahead on a like-for-like basis. Meanwhile, revenue totalled £686.6m, up 100% on a reported basis and lifted 52% like-for-like.

Gross profit was £560m, up 90% reported and 44% ahead like-for-like, while adjusted basic earnings per share totalled 13.0p, up 65% on the 7.9p posted a year earlier.

Encouragingly, S4 noted that during the period, it expanded its relationships with companies such as Google, Amazon, and Netflix. It also added new clients such as Allianz, Miele, and Dropbox.

And looking ahead, it said it plans to capture 20 clients each generating revenues of over $20m per annum between 2022 and 2024.

It added that 2022 had started more than in line with its latest three-year plan to double gross profit organically in three years. Like-for-like gross profit growth in January and February came in above its target of 25%.

Why were the results delayed?

As for why the full-year results were delayed, it seems it was down to control weaknesses and a lack of detailed documentation in its content division in relation to the accounting for uncompleted projects. Executive chairman Sir Martin Sorrell described the delay as “unacceptable and embarrassing.”

He noted that “significant changes” in its financial control, risk and governance structure were being implemented across the group in order to ensure that delays in producing figures do not occur again.

Should I buy S4 Capital shares now?

So is the stock worth buying now that results have been published? I think it is. The results show that S4 is still growing at a phenomenal rate. And there was nothing too sinister in the results from an audit perspective.

Meanwhile, after a huge share price fall recently, the stock now looks very cheap. With analysts expecting earnings per share of 17.4p for 2022, the forward-looking P/E ratio here is just 18.4. That seems low, given the growth rate.

Having said that, there are risks to consider. One is the global economy. S4 noted in its results that digital marketing expenditure is closely correlated to GDP growth, just as traditional media spending used to be in the last century. Right now, GDP forecasts are being cut. Another is the possibility of more control weakness/accounting issues.

Given these risks, I would keep my exposure to the stock quite small.

S4 is a UK stock I’ve had my eye on for a while now. I’ve always been impressed by the growth story. Has the recent share price fall provided a great buying opportunity for me? Let’s take a look.

Three reasons to buy S4 Capital shares today

There are a number of things to like about S4 right now, to my mind.

For starters, there’s the high level of growth the company is generating. Between 2018 and 2020, revenue jumped from £55m to £343m. That represents a compound annual growth rate (CAGR) of about 150%. There are not many companies on the London Stock Exchange generating that kind of growth.

We obviously don’t have a top-line figure for 2021 yet as the company hasn’t published its results. However, in January, S4 said that last year it saw “very strong” like-for-like revenue and gross profit growth that was well ahead of the previous company guidance of 40%. That’s encouraging.

Secondly, the company has a top leader in Martin Sorrell. Previously, Sorrell built FTSE 100 firm WPP into a global advertising behemoth. He appears to be doing the same thing here.

Third, the company’s valuation now seems pretty reasonable. When I’ve looked at S4 shares in the past, I’ve often thought they were quite expensive. However, that’s not the case today. With analysts expecting earnings of 17.7p per share for 2022, the forward-looking P/E ratio is just 17. That strikes me as low relative to the growth being generated.

High level of uncertainty

Having said all that, the fact that the 2021 results have been delayed twice now due to auditor issues does add quite a bit of uncertainty here.

Originally, the results were meant to be published on 18 March. Then, the company said they’d be posted on 31 March. It’s now 19 April and we still don’t have them.

This is a bit of a concern, in my view. And clearly, some investors see it as a red flag. The significant delay here could be a sign that the auditors have seen something they don’t like.

It’s worth pointing out that at this stage, there’s absolutely no evidence that something is wrong here. However, the situation is certainly a bit strange.

Should I buy S4 Capital shares today?

Given the uncertainty here, I’m inclined to wait until the results have been published before making a decision as to whether the stock is worth buying for my portfolio, in order to ensure there are no ‘nasties’ here.

This could mean I miss out on gains of 10%, 20% or more if there are no problems with the 2021 results, and the stock rockets higher immediately after the results are published.

However, it could also protect me in the event that there’s some bad news and the stock craters. If the auditors have identified a problem here, I’d expect the share price to tank.

For me, it’s all about balancing risk versus reward.