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Why I’m picking UK growth stocks like this one

first_img Image source: Getty Images. I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement. Kevin Godbold | Tuesday, 9th February, 2021 | More on: RM Simply click below to discover how you can take advantage of this. The high-calibre small-cap stock flying under the City’s radar Why I’m picking UK growth stocks like this one Many investment strategies can be successful, such as picking UK growth stocks. Equally, investors can struggle to make consistent money from any strategy. But one way for me to increase the chances of success is to find an approach I’m comfortable with and stick with it.Focusing on UK growth stocksHaving said that, some investors do well by using multiple methods. But my strategy involves aiming to invest in growth companies. So I’m looking for businesses with the potential to increase their earnings and expand their operations year after year. And one stock I’ve been following for some time is education technology and resources company RM (LSE: RM).5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…But the firm is no FTSE 100 giant. With its market capitalisation around £174m, we can find RM in the FTSE Small Cap index. But I tend to find most of my growth share ideas among smaller enterprises. One general theory is that smaller businesses tend to have more room to grow.And RM was doing well in the years leading up to the coronavirus crisis. It had been raising the shareholder dividend by increments and the payment was up around 112% over about six years. Although the pandemic caused the directors to stop dividend payments last year.As well as dividend gains, shareholders enjoyed capital appreciation from a rising share price. And growth in earnings partly drove that outcome. But earnings and the share price have been volatile over the past 12 months.RM has positive potential as well as plenty of risks in its business. We’ve seen how exterior events can affect trading. Although new pandemics don’t arrive every day, the company does have its operations concentrated in one sector that’s mostly publicly funded. So future changes in government policy could damage the quality of the firm’s trading opportunities, for example.Business recovery expectedThe closure of schools has been a blow for RM. And chairman John Poulter said in today’s full-year results report: “Trading in 2020 was inevitably dominated by the consequences of Covid-19.” In the 12 months to 30 November 2020, revenue dropped by 16% year-on-year. And adjusted earnings per share plunged by 51%.But despite the ongoing challenges of Covid-19, the outlook is positive and the directors declared a dividend of 3p per share. I think the move to reinstate dividends speaks volumes about their confidence in the firm’s future.The decision was probably helped by a strong performance regarding net debt, which came in at £1.3m, down from £15m the year before. RM achieved that outcome with a “focus on cash and costs.” But the pension deficit has risen to £18.7m, up from £6m a year ago.City analysts expect earnings to snap back by just over 30% in the current trading year to November. Meanwhile, with the share price near 211p, the forward-looking earnings multiple is around 13. And the anticipated dividend yield is about 2.3%. Forecast earnings should cover the shareholder payment around 3.5 times. I think the valuation is undemanding compared to the company’s ongoing potential to grow. Click here to claim your copy of this special investment report — and we’ll tell you the name of this Top Small-Cap Stock… free of charge!center_img Adventurous investors like you won’t want to miss out on what could be a truly astonishing opportunity…You see, over the past three years, this AIM-listed company has been quietly powering ahead… rewarding its shareholders with generous share price growth thanks to a carefully orchestrated ‘buy and build’ strategy.And with a first-class management team at the helm, a proven, well-executed business model, plus market-leading positions in high-margin, niche products… our analysts believe there’s still plenty more potential growth in the pipeline.Here’s your chance to discover exactly what has got our Motley Fool UK investment team all hot-under-the-collar about this tiny £350+ million enterprise… inside a specially prepared free investment report.But here’s the really exciting part… right now, we believe many UK investors have quite simply never heard of this company before! Enter Your Email Address Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we’re offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our ‘no quibbles’ 30-day subscription fee refund guarantee. Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors. See all posts by Kevin Godbold Our 6 ‘Best Buys Now’ Shareslast_img read more

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