This year is unlikely to go down as a vintage one for UK growth stocks. However, the positive momentum seen in some over the last few weeks suggests 2024 could be an absolute corker for risk-tolerant investors like me.
As an example, the share price of one company I hold in my portfolio has jumped 63% in the last month alone!
On the march
The high-flyer in question is small-cap holiday operator On the Beach (LSE: OTB).
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I first began investing here as we emerged from the pandemic. To be frank, I soon thought I’d made a horrible mistake as the shares kept falling.
But recent price action has been far more encouraging. No doubt a lot of this can be attributed to a very encouraging set of full-year numbers released at the start of this month.
What’s going so well
As an indication of just how strong demand for holidays is, revenue for the 12 months to September 30 came in at just over £170m. This was almost 19% higher than that achieved in the previous financial year, helped by a healthy jump in passenger numbers over the summer months.
Elsewhere, On the Beach saw a reduction in marketing costs as a percentage of revenue and stable admin expenses. This led the firm to announce pre-tax profit of £12.9m. In FY22, it was £2.2m.
And the outlook?
I think there’s at least a good chance that recent momentum will continue. Total transaction value was up 26% in the first nine weeks of the new financial year due to booming winter bookings.
With growth like this, it’s no surprise that management already believes trading next summer will be “significantly ahead” of the same period this year.
And if inflation continues to drop and consumer confidence returns, I’m not about to argue.
Dividends to return
If that wasn’t good enough, the company also announced its plan to reinstate dividends from FY24. Now, this isn’t likely to be very much and I could easily get more income from elsewhere in the market.
But passive income was never my priority here. What’s more important for me is the positive signal it sends to the market. After all, it would be a pretty poor decision to start returning cash to shareholders again if the company wasn’t in rude health.
With trading going from strength to strength, not to mention almost £76m in cash on the balance sheet, that seems to be the case.
What I’m wary of
Despite all this, I’m keeping my feet on the ground. The travel industry is notoriously volatile due to the sheer number of factors that can impact trading — from poor weather to high fuel prices to terrorist activity.
Nor is this a space devoid of competition. To stay ahead, On the Beach has needed to spend money on developing its platform and improving its customer experience. I can’t see this changing going forward.
Still great value
These concerns aside, I’m tempted to add to my stake here, especially as On the Beach shares continue to look fairly priced.
A PEG ratio of less than 0.7 — where anything under 1 usually signals good value — suggests I’d still be getting a lot of potential bang for my buck.
