While the FTSE 100 index has made a nice recovery from its March low, this doesn’t tell the full story in relation to the UK stock market. Indeed, a closer look reveals that many shares, particularly in the small-and mid-cap areas of the market, have been beaten up and left for dead.
Personally, as a long-term investor who likes to buy growth shares at a reasonable price, I’m not complaining. Right now, I’m seeing plenty of buying opportunities. With that in mind, here’s a look at two beaten-up growth shares I’d buy today.
A fast-growing, disruptive UK company
The first stock I want to highlight is Keystone Law (LSE: KEYS), a small-cap company that’s listed on the UK’s Alternative Investment Market (AIM). It’s an innovative legal firm that operates a platform model where lawyers can work remotely.
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Keystone Law’s share price has taken a massive hit this year and I don’t think the fall is justified. This company has grown at an impressive pace over the last few years (five-year revenue growth of 162%). Meanwhile, in mid-January, the group said the business was performing well. It noted that adjusted profit before tax for the year ending 31 January 2022 would be “materially ahead” of expectations.
Of course, one major risk here is the possibility of a UK recession. An economic downturn would most likely impact demand for legal services. However, I’d expect Keystone to weather the storm. It’s a highly profitable company with a strong balance sheet. And it’s continuing to add lawyers to its platform at a healthy rate.
After its recent share price fall, Keystone now sports an attractive valuation in my view. With analysts expecting earnings of 21.8p for 2022, the forward-looking P/E ratio is under 30.
It seems investors are catching on to the value on offer here. Since 23 March, Keystone’s share price has been moving upwards. I think there’s plenty more upside on the cards.
Down 70% in a year
The second beaten-up growth stock I want to discuss is online fashion retailer ASOS (LSE: ASC). This year, its share price has fallen 33%. Meanwhile, over the last year, it’s down about 70%.
ASOS does face some challenges right now. Like most retailers, it is experiencing supply chain and cost issues. Meanwhile, it has suspended operations in Russia, which accounts for about 4% of sales.
I still like the long-term growth story here though. Over the next five years, the online fashion industry is projected to grow by around 7% per year. This should provide tailwinds for the company.
After the recent pullback, ASOS shares look very cheap. For the year ending 31 August 2023, analysts expect the group to post sales and earnings of £4.9bn and 14.6p respectively. That puts the stock on a price-to-earnings ratio of 15 and a price-to-sales ratio 0.41. I see a lot of value at those multiples.
In terms of risks, supply chain issues could last a while. I think they could last all year and persist into 2023. So patience is needed here. I’ll be taking a long-term view.
It’s worth noting that ASOS shares recently moved from the AIM market to the main market. This could help the group attract more attention from institutional investors when business conditions improve.
