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Growth stocks are back on the menu, with the UK economy expected to avoid recession by 2023.
That’s according to the Confederation of British Industry (CBI), which now predicts GDP growth in 2023 will be 0.4%, an increase from the -0.4% previously predicted.
Despite the brighter macro picture, I’m avoiding these two high-profile UK growth stocks.
Not so wise?
In my view, fintech company Wise (LSE:WISE) is taking a path that is not as smart as its name suggests.
The company recently showcased a 29% year-over-year increase in Q1 revenue to £240 million. In response, the market has increased its share price.
However, investors should not be swayed by these numbers. Beneath the surface, there are signs of trouble.
While Wise’s top numbers may appear strong, they make up for an underlying slowdown in the company’s growth. The slowdown, according to Citi analyst Andrew Gardiner, stems mainly from a decline in average volume per subscriber, an important driver of long-term growth.
Looking into fiscal 2024, Wise expects its growth to slow to 28%-33%, largely due to declining customer usage.
This signals a sharp departure from the extraordinary 73% revenue growth experienced in FY 2023. The slowdown, coupled with company warnings about “unusual trends” from FY 2023, paints a picture of uncertainty.
Additionally, competition in the fintech space is on a steep slope, further challenging Wise’s prospects.
Giants like PayPal, Amazon Pay and Western Union to newcomers like Atlantic Money and DonorBox are all vying for a slice of the lucrative fintech pie. Barriers to entry are low, reducing the likelihood of a given firm maintaining a dominant position.
While Wise’s short-term performance may have blown some away, I give this particular growth stock a wide berth.
Greetings growth goodbye
Moonpig (LSE:MOON), an online greeting card retailer, recently gained market support. While the company’s FY 2023 earnings beat expectations and the stock has risen by 40% this year, the truth may be less rosy.
The company recently reported a 13% decline in profit before tax for fiscal 2023. This came despite revenue rising 5.2% to £320.1 million, due to increased costs.
What’s more, the company expects somewhat dull low single-digit revenue growth for the first half of the new fiscal year. This does not bode well for a company that is being touted as a growth stock with a price-to-earnings (P/E) ratio of 20.
Despite the CEO’s upbeat talk of high profitability, strong cash generation, and flexibility, the market may not be convinced. Moonpig is currently the eleventh shortest stock on the London Stock Exchange, a sign of skepticism from big money managers.
While Moonpig may be flying high right now, the undercurrent of higher costs, muted growth forecasts, and potential reductions in discretionary spending make it a growth stock I wouldn’t touch with a 10-foot pole.