As a young investor, I am always on the lookout for stable UK growth stocks that I can buy and hold for years. I gauge businesses by looking at industry potential and the expansion strategy of the company.
Based on these factors, I have identified two UK growth stocks that I would add to my portfolio and hold for steady returns over the next decade.
$300bn industry
A recent report published by Accenture valued the gaming industry at $300bn including console sales and e-sports revenue. British game developer Frontier Developments (LSE: FDEV) is capitalising well on this boom and is set to release big titles that could make it a top name in the industry in the years to come.
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In the last 12 months, its stock has risen 30.4% and five-year returns stand at an incredible 1,344.1%, showing how far the industry and company have grown in the last half-decade.
The total revenue in the first half (H1) of 2021 was £36.9m. A large chunk of this comes from paid downloadable content (PDLC) from existing successful titles like Elite Dangerous and Jurassic World Evolution.
The H1 2021 report stated that Elite Dangerous: Odyssey and Jurassic World 2 is also part of its line-up for 2021. This is exciting news for investors as sequels are money-minters in the gaming industry. The company expects 2023 revenue to be £160m–£180m. It also has large cash reserves of £34.9m after investments in a new development label, Frontier Foundry.
But, the gaming industry is very unpredictable. Take the example of CD Projekt RED’s Cyberpunk 2077. The hype was massive, but glitches killed the game completely and the company is set to lose around $50m.
Despite this uncertainty, I remain keen on investing in the gaming sphere and Frontier Developments is on top of my list of UK growth stocks to buy.
Pet care growth stock
Veterinary service provider CVS Group (LSE: CVSG) is on an impressive run in the market. Its share price recently hit an all-time high and I think this growth stock is just getting started.
The pandemic brought with it a huge increase in pet ownership in the UK and CVS Group has benefited immensely from it. In the last 12 months, the share price has gone up 116.9% and there are no signs of this slowing down.
The company’s revenue went up 5.2% to £427.8m in 2020 along with a 46.8% increase in cash generated from operations and a £12.4m investment in new equipment and facilities. This shows me that the company is ready to make the push to be the top vet healthcare provider in the UK. The board expects profit to more than double by 2023–24, which could greatly impact shareholder returns.
A major concern is the current entry price, which might seem inflated because of the 50.8% increase in share price over the last six months. But, I still think it is a great long-term investment because the number of pet owners could continue rising as pets are increasingly becoming a part of the modern home. Even public spaces are becoming increasingly pet friendly. As a pet owner myself, I understand the importance of quality vet services. The business is showing signs of steady growth over the next 10 years, making it a must-have UK growth stock for my portfolio.
