Forget Rolls-Royce shares. I’ve just bought this growth stock

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. Enter Your Email Address Rolls-Royce (LSE: RR) is one of the most popular stocks on the London Stock Exchange right now. Both last week and the week before, Rolls was the second most bought stock on Hargreaves Lansdown.Personally, I don’t see a lot of investment appeal in Rolls-Royce shares. Here, I’ll explain why. I’ll also highlight a UK growth stock I do like and have bought more of recently.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…Rolls-Royce shares: would Warren Buffett buy?The reason I don’t see much investment appeal in Rolls-Royce is that I view it as a ‘low-quality’ stock.Just look at the company’s financials. In three out of the last five years, it has generated big losses. Analysts expect the group to generate another substantial loss this year.Rolls-Royce also has a pile of debt on its balance sheet. In the group’s half-year results, it reported net debt of £1.7bn. The group has raised money to bolster its balance sheet recently. However, it’s still not financially strong.Then there’s the dividend. This was cut substantially a few years back. Since then, the payout hasn’t been increased.Putting all this together, Rolls-Royce is the kind of stock billionaire investor Warren Buffett would run a mile from. Sure, Rolls-Royce’s share price could keep rising in the short term. However, the lack of quality attributes suggest to me that RR is unlikely to be a good investment in the long run.If Buffett bought small-caps…One UK stock I do think has the potential to be a great long-term investment is dotDigital (LSE: DOTD). This is a fast-growing cloud-based software business that helps companies send marketing communications to their customers.DotDigital is a really impressive business, in my view. For starters, it has a fantastic growth track record. Over the last five years, the company’s top line has climbed from £21.4m to £47.4m. Recent results, for the year to the end of June, showed a 12% increase in total revenue, with revenues in the APAC region growing 37%. Recurring revenue last year was 91%.Source: dotDigitalSecond, the company is highly profitable. Over the last five years, return on capital employed (ROCE) has averaged close to 25%. This suggests it has a competitive advantage.Third, its dividend growth track record is excellent. Since paying a maiden dividend in 2014, it has increased its payout every year.Finally, it has a very strong balance sheet. At 30 June, it had cash of £25m and no debt.Unlike Rolls-Royce, dotDigital is very much a high-quality business. It’s the kind of business that has the potential, over time, to make investors a lot of money. I’ll point out that I first bought DOTD shares at around 23p a few years back and, since then, they’ve risen, slowly and steadily, to 140p.I’ve bought more sharesBut dotDigital shares aren’t cheap. Currently, the forward-looking P/E ratio is about 35. That valuation adds some risk to the investment case. However, I don’t see it as a deal-breaker. This is a high-quality company that’s growing rapidly. After rising to 155p in October, dotDigital shares have pulled back below 140p recently. I see this pullback as a buying opportunity. Earlier in the week, I took advantage of this share price weakness and bought more shares. As I said, I think this stock has the potential to be a winning long-term investment. Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge! I’m sure you’ll agree that’s quite the statement from Motley Fool Co-Founder Tom Gardner.But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.What’s more, we firmly believe there’s still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.And right now, we’re giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool. Forget Rolls-Royce shares. I’ve just bought this growth stock Simply click below to discover how you can take advantage of this.center_img 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. Edward Sheldon owns shares in Hargreaves Lansdown and dotDigital Group. The Motley Fool UK has recommended dotDigital Group and Hargreaves Lansdown. 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. “This Stock Could Be Like Buying Amazon in 1997” Our 6 ‘Best Buys Now’ Shares Edward Sheldon, CFA | Friday, 27th November, 2020 | More on: DOTD RR See all posts by Edward Sheldon, CFAlast_img

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