Every month, we ask our freelance writers to share their top ideas for growth shares to buy with investors — here’s what they said for March!
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Ashtead Group
What it does: Ashtead Group supplies rental equipment chiefly to the US construction and industrial sectors.
By Royston Wild. FTSE 100 stock Ashtead Group (LSE:AHT) has delivered strong and sustained earnings growth for more than a decade now. This has been underpinned by a commitment to acquisitions that’s blasted the rental equipment specialist’s market share higher.
City analysts are expecting annual profits to keep expanding over the next few years at least. A 22% increase is tipped for the current financial year to April 2023 alone.
I think buying Ashtead shares could be a good idea before third-quarter trading numbers are released on Tuesday, 7 March. The company has a strong track record of beating expectations, and in December’s second-quarter update predicted that full-year earnings would beat its forecasts.
Another solid result next month could lift the Footsie firm’s share price even higher. I expect trading here to remain strong as equipment demand from its key end markets continues to outstrip supply.
Royston Wild owns shares in Ashtead Group.
Diploma
What it does: Diploma is a collection of smaller businesses focused on distributing industrial components.
By Stephen Wright. Top of my list of growth shares to buy is Diploma (LSE:DPLM). The stock is down 2% since the start of the year, compared to a 3% increase for the FTSE 250, so I’m looking to take advantage of the falling share price.
Diploma has everything that I look for in a stock. It has an economic moat, it generates solid cash flows, and it’s growing.
The company’s moat comes from the fact that its subsidiaries have dominant positions in niche markets. This makes them difficult to disrupt.
As a distributor, the company doesn’t have manufacturing plants to maintain. That allows it to keep its capital expenditures to 12% of the cash it generates through its operations.
Lastly, the company reported 30% revenue growth at its last earnings presentation. It ticks all the boxes for me, which is why it’s my top UK growth stock to buy in March.
Stephen Wright owns shares in Diploma.
Focusrite
What it does: Focusrite is an audio technology company, which develops and markets hardware and software solutions
By Paul Summers: I’ve long been an admirer of global music and audio products group Focurite (LSE: TUNE). However, it’s always been just that little too dear for me to buy. That is, until now.
Last year wasn’t an easy one for investors. High freight costs impacted margins. Component shortages and supply chain issues added to the mid-cap’s woes.
February’s update was more encouraging. Trading during the first four months of its financial year has been in line with management expectations and guidance remains unchanged. The aforementioned issues are also showing signs of fading.
Having tumbled over a third in value in the last 12 months, the stock now trades at less than 16 times earnings. That’s not cheap relative to the general market, but it could prove a bargain in time thanks to new product launches and acquisitions.
Consistently high returns on the money it puts to work are another attraction.
Paul Summers has no position in Focusrite
Games Workshop
What it does: Games Workshop is a British manufacturer of miniature fantasy wargames including its iconic and proprietary Warhammer series.
By John Fieldsend. Games Workshop (LSE:GAW) has had an excellent few years in terms of growth. Since 2016, the company has enjoyed year-on-year average revenue growth of over 20%, with the revenue growing from £118m in 2016 to £415m in 2022. And with average profit margins in the 60-70% range, earnings look very good too.
The recent move by Amazon Prime Video to make a TV series using the Warhammer name is an intriguing one. Similar fantasy worlds like Game of Thrones and Lord of the Rings have proven to be runaway successes. If Amazon can replicate even a fraction of those successes, it could be a strong catalyst for Games Workshop’s share-price growth.
As far as growth stocks go, I can’t see anything else around right now that offers the same solid financials along with a potential catalyst in the near future.
John Fieldsend does not own shares in Games Workshop or Amazon.
Greggs
What it does: Greggs is a popular and affordable UK-based food-on-the-go retailer. It manufactures and sells a variety of freshly prepared food.
By Harshil Patel. Greggs (LSE:GRG) is currently my favourite growth share in the UK. It has been on quite a journey over the years, transforming from a predominantly Northern bakery to a nationwide, modern food-on-the-go brand.
But its journey looks far from over. It has an ambitious plan to double its sales over the next five years. That level of growth is likely to come from new store openings.
Last year, it managed to open a net 147 stores and it has a similar target for 2023.
Additionally, it plans to grow sales from extending evening trade and expanding its digital offering.
It’s not the cheapest stock around, but its growth rate could justify its elevated price-to-earnings ratio.
With a return on capital employed of over 20%, and a double-digit profit margin, I’d call this a high-quality growth business.
It offers ample cashflow, and a solid balance sheet. This should allow it to comfortably use capital to expand the business.
Harshil Patel does not own shares in Greggs.
Kainos Group
What it does: Kainos provides information technology, consulting, and software for business clients and organisations.
By Charlie Carman. Kainos Group (LSE:KNOS) is well positioned to take advantage of the ongoing AI revolution. The company’s expertise in digital transformation places it at the forefront of UK stocks operating in this exciting sector.
The business recently partnered with HM Land Registry to develop an AI solution that reduces the need for manual labour in its oversight of 25m property titles. Its successful delivery of bespoke image-based recognition modules and document comparison tools gives Kainos significant credibility in the sector.
Beyond AI, the company’s partnership with US software vendor Workday is an important source of income. Kainos has delivered rapid compound annual growth rates in revenue for Workday services and products of 50% and 42% respectively over the past five years.
A price-to-earnings ratio above 46 might look lofty, and this comes with heightened volatility risks. Nonetheless, if the company can continue delivering exceptional growth, the shares’ valuation doesn’t look unreasonable to me.
Charlie Carman has no positions in Kainos Group.
Sage
What it does: Sage is a provider of cloud-based accounting and payroll solutions with a focus on small- and medium-sized businesses.
By Edward Sheldon, CFA. There are two main reasons I’ve selected Sage (LSE: SGE) for my top growth shares this month.
The first is that the company is performing well at the moment. In a trading update posted in January, it advised that for the quarter ended 31 December 2022, it generated total revenue growth of 9% year on year. Recurring revenue from Sage Business Cloud was up 31% year on year.
The second is that there has been some notable insider buying here recently. In January, Sage’s Chief Product Officer bought stock. Meanwhile, in February, a person closely associated with CEO Steve Hare purchased shares. Insiders only buy stock for one reason – they expect it to rise.
The biggest risk with Sage shares, in my view, is a sharp economic downturn that impacts smaller businesses badly. This could lead to lower growth.
I think there’s a good chance that demand for Sage’s solutions will remain robust, however. That’s because they can help companies increase efficiency and lower costs.
Edward Sheldon owns shares in Sage.
