With the market dislocating downwards by 6% in just two sessions this week, some of the market's favourite growth stocks plunged by a multiple of that. It's times like these that buying those sexy tech names at questionable multiples really comes under the spotlight.
But what about the market darlings of last year that have already been through a de-rating process after the spotlight moved on? With two growth stock specialists in the studio for this week's Buy Hold Sell, we ran three quality growth names at a discount past them, and asked for their nomination for one more.
Matthew Kidman: Welcome to Buy, Hold, Sell. My Name's Matthew Kidman and joining me today is Emma Fisher from Airlie and Catherine Allfrey from WaveStone. Growth stocks have been much loved recently, but believe it or not, there's a handful that haven't done so well. Catherine, I'll start with you. Bapcor (ASX:BAP), wholesale, cars, so on. It's kind of falling from grace little bit, not as sexy as it was. Buy, hold or sell?
Emma Fisher: Oh look, this is a solid sort of story for us. So we've got a buy on this one and we can see like-for-like sales growth of about 3% and about 10 outlets opening each year. So for us it's a steady grower and management have been delivering, so we're happy to back it.
Matthew Kidman: With interest rates around 1%, 3% gross is pretty good. Buy, hold or sell, Bapcor.
Catherine Allfrey: Oh, at the current share price I'd put it on a hold. I think that, like Catherine, I do like the long-term story. There's been a lot of M&A, Thailand rollout. There's a few things that I really think that management team really needs to digest and prove their execution on. So at the current share price, it' had a good run. We've got it on hold.
Matthew Kidman: Okay. Reliance Worldwide (ASX:RWC). Terrific float, went to the US to the UK. Buy, hold, or sell?
Catherine Allfrey: Oh look, I'm going to put this on a sell. I do like the structural growth story of SharkBite, but there's just a few too many red flags for me. Poor cash flow conversion, some accounting irregularities and then debt kind of creeping up and the Chairman selling his whole stake, so that that's just one too many for us. So I've got it on a sell.
Matthew Kidman: This was a market darling at one stage on a big multiple, 30 odd times. It's been really de-rated. Buy, hold or sell.
Emma Fisher: Well we haven't been in it, so we've actually taken this opportunity to go back in, so it's a buy for us. We're looking at the longer-term story. We like the fact that it can continue to penetrate the US market, so we're happy to back it.
Matthew Kidman: Okay. One that was hit by a short seller pitch, Corporate Travel (ASX:CTP). That was going back a little while. Hasn't really recovered, but it's still got that global growth option in the travel industry. Buy, hold or sell?
Catherine Allfrey: For us this one's a hold, but this is one of the stocks that we will be really watching in this coming reporting season because, like you say, those forensic shorters have thrown a lot of mud in the last 12 months at this one. So it's definitely one we'll be watching. But for us it's just not cheap enough to buy.
Matthew Kidman: Emma, do you think some of that mud might stick and we might see it in this result? Buy, hold or sell?
Emma Fisher: Yeah, I've got it on a sell. I think that management can always explain away poor cashflow conversion in any business. But I think if it's this sort of sustaining feature of results, usually the simplest explanation is the right one. So for us, the valuation is not compelling. So, why bother?
Matthew Kidman: Okay, here's your chance. We'll go shopping. Growth at a discount. What have you gone for us?
Emma Fisher: Yeah, look, there's very few stocks that are categorised as growth at a discount. One we like is Smartgroup (ASX:SIQ). So the reason it's at a discount is the new car sales market has fallen quite considerably and they've actually maintained, so they're novated lease players, and they've maintained flat volumes in a market that is down 20%, so that's a fantastic outcome we think. And then it's got, it's got basically no debt, a good management team, best customer service, best tech in the industry and it's pretty cheap at the moment. So that's one that we like.
Matthew Kidman: Okay, Catherine, growth at a discount. Sounds good, doesn't it?
Catherine Allfrey: If you can get it. We like James Hardie (ASX:JHX). We've seen the Fed starting to cut rates. We've seen mortgage rates in the US move from 5% to 4%. We're starting to see builders' order books starting to fill up. We like what we're seeing and so therefore we think that we'll get a nice earnings cyclical uplift for James Hardie in the US and trading on 17, 18 times. We think that's reasonable. So we're a buyer of James Hardie.
Matthew Kidman: It's always been the case and will continue to be. Growth covers all ills.
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