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Friday, August 12, 2022

2 beaten-down growth stocks I’m buying this month!

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Every so often, I add growth stocks to my portfolio and generally hold them over a fairly long period of time, perhaps five years. Much of my investment philosophy revolves around the rate of earnings growth and how effectively products are being rolled out. Let’s take a closer look at two exciting growth stocks I’m buying this month.

44% compound annual EPS growth rate

The Atalaya Mining (LSE:ATYM) share price has been volatile recently, having fallen 28.5% in the last month. Yet over the last year, it’s down by just 2.7%. At the time of writing, it’s trading at 294p.

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Between 2017 and 2021, the company – a copper mining firm operating in Spain – exhibited strong earnings growth. During this time, earnings per share (EPS) rose from ¢15.5 to ¢96.7. By my calculations, this results in a compound annual EPS growth rate of 44.2%. 

While I’m aware that past performance is not necessarily indicative of the future, this earnings growth rate is fast by anyone’s standard. Over the same time period, pre-tax profits increased from €21.91m to €159m. 

While there are threats from cost inflation and rising energy prices, the business still achieved operating cash flow of €28.3m in the first three months of 2022. Furthermore, it had a healthy cash position of €86.8m in March.

Rapid profit growth

The share price of Keywords Studios (LSE:KWS) has been similarly volatile recently. While down 11% in the past year, it’s fallen 16% in the last six months. The shares currently trade at 2,300p.

Between 2017 and 2021, EPS rose from ¢31.18 to ¢89.24. This means that the company – which provides support services for the gaming industry – had a compound annual EPS growth rate of 23.4%. While this is slower than Atalaya Mining, it’s still a very solid rate.

During this period, pre-tax profits also increased from €12m to €48m.

In 2021, revenue increased by 37.1% and pre-tax profits grew by over 50%, year on year. These improving financial results enabled the business to reinstate its dividend, with a yield of 0.1%. While this may not seem much, it’s an improvement from 2020, when the company withdrew its dividend.

In any case, I’m attracted to the firm for its growth potential, not for an income stream.

What’s more, higher game player numbers and a slate of new game launches mean that the coming years may continue to be profitable for the company. However, there is the threat that the cost-of-living crisis leads to a decline in demand for games.  

Overall, both of these firms exhibit consistent and rapid earnings growth. While this is obviously not guaranteed to continue, it’s a good indication of well-run enterprises. In an effort to benefit from quality growth stocks, I’ll be adding both Atalaya Mining and Keyword Studios to my portfolio this month. 

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