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As modest as the UK stock market has been in 2024 so far, I can still find plenty of cheap growth stocks that could rise significantly if interest rates continue to fall and economic confidence gradually improves.
Recovery stock
One example I would consider buying now if I had the money JD Sports Fashion (LSE: JD).
Now, it's fair to say that this seller has seen better times. The cost of living crisis has reduced sales and reduced prices by about 15% by 2024. And it is nearly 40% below the record high reached in November 2021.
There is a risk of this negative momentum continuing if the company's expensive expansion in North America does not go according to plan. As part of its strategy to diversify its earnings, it recently shelled out $1.1bn to acquire a US rival. Hibbett.
But I would argue that the biggest fear is now baked. The price-to-earnings (P/E) ratio of just under 11 is cheaper than the UK stock market average. It's also well below JD Sports Fashion's five-year P/E ratio of 20.
On another positive note, the last update (in August) showed some encouraging signs. Management reported a 2.4% increase in underlying sales for Q2 and made no change to full-year guidance for adjusted earnings.
Are those green shoots I see?
The market leader is 'cheap'
Another FTSE stock that could be a real bargain is the property platform provider Rightmove (LSE: RMV).
That may seem like an odd thing to say considering the shares are already trading at a P/E of 22. But Rightmove is a special company, in my opinion. In addition to being a clear leader in what it does, the asset's bright business model means it can achieve surprisingly high margins.
Like JD Sports Fashion, the valuation is also well below the five-year P/E ratio of 31.
Of course, the near-term trajectory of Rightmove's share price going forward will likely depend heavily on how quickly UK interest rates fall from here.
A series of downgrades (rightfully so) could see this growth stock recapture its former glory as investors bet that earnings will rise as housing market activity picks up. But pausing longer than expected after the first drop can do the opposite.
As AI continues to gain acceptance, there may be some contenders for its crown.
Time for this fallen star to rise?
A third UK growth stock that looks interesting from a valuation perspective is this Swiss watches (LSE: WOSG).
This is another seller that has been hit by the economic winds. But, again, many evils now seem to have a price. I can find a stock with a P/E of just nine right now. If trade really shows signs of recovery, as executives said in June, there could be a strong recovery ahead.
On the other hand, the shares may be lowered collectively if other businesses in the luxury sector continue to trade poorly. Even the brand of watches it sells may lose its popularity to more tech-oriented watch brands.
Maybe it might be better to wait for the next update before moving here. Fortunately, we have to wait until next Tuesday (September 3) this time.
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