When it comes to growth shares, it can sometimes seem as if the London market offers thin pickings compared to what can be found Stateside.
But there are some UK growth shares I think have real potential.
One of them has been getting cheaper. Its price is now 20% lower than it was a year ago. I have been buying it for my portfolio at what I see as an attractive price.
Strong position in a market with long-term potential
That company is money transfer specialist Wise (LSE: WISE).
This strikes me as a pretty simple business sector to understand, albeit it can be one that is fiendishly complicated to operate in.
Lots of people and businesses need to transfer money internationally. That is likely to remain the case for the foreseeable future.
Historically that was done by banks, who often extracted substantial fees for the service. That has opened up opportunities for other companies to compete on price.
This market rewards scale.
The legal and regulatory complex is costly to navigate, so larger revenues can enable those costs to be swallowed more easily.
If possible, having users in many different countries who want both to buy or sell their currency can make it easier to match transactions directly rather than having to fall back on a third party to fulfil deals at additional cost.
Getting that scale by competing on price risks lower profit margins – a risk Wise continues to face.
But it can set a business up for longer-term success. Meanwhile, a lot of the money to be made here is not actually from exchange fees but from using customers’ deposits to make money, for example by lending them out at higher interest rates than those customers earn from them. In other words, just like a bank.
Wise has a lot of strengths
So, how is Wise faring?
I would say it is doing well.
Next week will see it publish final results, giving us the most up-to-date view of performance. But we already know that cross-border transactions in the final quarter of last year grew 26% year on year.
Underlying income was up 24%. Customer holdings in Wise accounts grew 37% to £29bn.
Those are strong numbers, so why has the growth share been getting cheaper?
One reason is concerns about price competition eating into profitability as I mentioned above. That is a risk for Wise.
Indeed, the company has said that it “remains focused on investing in long-term growth and becoming ‘the’ network for the world’s money”, which I read as a coded warning about profitability levels while it chases growth.
A more recent concern was news of a money laundering investigation involving its European arm. The stock market reacted by marking down the share price.
Why I’ve bought
I used that price fall as an opportunity to load up on the growth share.
Money transfers are naturally of interest to money laundering investigators. As Wise is a large player, such investigations will likely happen from time to time. As far as is publicly known so far, there is no reason to believe that the investigation will find any wrongdoing on its part.
The business is booming, growing fast, and looks well-positioned for long-term global growth.
Should you invest £5,000 in Wise Plc right now?
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Christopher Ruane owns shares in Wise.
