Could this promising growth stock help you achieve financial independence?

Paul Summers thinks this price comparison company could help you quit the rat race.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in price comparison website Go Compare (LSE: GOCO) climbed almost 6% in early trading this morning, building on the 50% rise already seen since the Newport-based business arrived on the market last November. Based on today’s update,  I can see demand for the £430m cap’s stock growing even stronger over the remainder of 2017.

Revenue in the six months to the end of June came in at “approximately £75.8m“, representing a 4% increase over the same period in 2016. 

Thanks largely to improvements in marketing margins, adjusted operating profit over H1 is now expected to be in the region of £17.5m — a cracking 22% jump on that achieved in the last year.

As a result of strong cash generation, Go Compare has significantly reduced the amount of debt on its books. Now standing at 1.5 times EBITDA, this is far below the 2.8 times seen when it de-merged from insurer Esure last year.

Beyond these positive numbers, the company also highlighted an agreement with Haymarket Media Group to expand its targeted comparison services and the purchase of a minority stake in “digital mortgage robo-adviser” Mortgage Gym. The latter’s new platform is scheduled to launch this September.

In addition to praising his new executive team for delivering “significant improvements in speed and capacity” over the half year period, CEO Matthew Crummack reflected that Go Compare was “wellpositioned” for the rest of 2017 and that its board was confident on the full-year outlook. 

Based on today’s price of 108p, shares in Go Compare trade on a forecast price-to-earnings (P/E) ratio of 18. While not screamingly cheap, predicted earnings per share growth of 56% in 2017 does mean that the company also boasts a price-to-earnings growth (PEG) ratio of just 0.9. As a rough rule of thumb, anything under one tends to be indicative of good value.

What’s more, the relatively low amount of capital expenditure required to keep the company moving forward increases the likelihood of Go Compare returning a decent amount of cash to shareholders over time. Although this year’s expected 1.8% yield may not be anything to shout about, the total payout is predicted to rise almost 22% in 2018.


Of course, Go Compare isn’t the only successful price comparison company out there. Indeed, the progress of listed rival (LSE: MONY) provides evidence of just how profitable buying slices of these asset-light, cash-generative businesses can be for investors.

In the dark days of the financial crisis eight years ago, stock in Moneysupermarket dipped as low as 34p. Today — thanks to canny marketing, sound financial management and a history of generating of generating consistently high returns on capital — the very same shares change hands for 354p. 

Like Go Compare, Moneysupermarket is forecast to put in a stellar performance over 2017 with expected earnings per share growth of around 24% leaving its shares on a valuation of 21 times earnings. While not excessive, this is noticeably more than that of its main competitor. At 2.2, Moneysupermarket’s PEG ratio is also far higher than its peer.

Bottom line?

With motor insurance premiums reaching record highs and drivers more motivated than ever to seek out the best deal possible, I think either company is worthy of investment at the current time. Given its smaller market cap and better growth prospects, however, I believe Go Compare may help investors realise financial independence sooner.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any shares mentioned. The Motley Fool UK has recommended 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.

More on Investing Articles

Investing Articles

Up 14% in 2024, what’s next for the Lloyds share price?

This Fool takes a closer look at what prompted the Lloyds share price to rise this year, and offers her…

Read more »

Investing Articles

5 FTSE 100 stocks to consider for a lifetime of passive income

I see lots of cheap dividend stocks in the FTSE 100 right now, but prices are starting to rise. Here's…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

3 growth stocks I’m desperate to buy as the FTSE 100 dips

Never waste a dip, says Harvey Jones. Three of his favourite growth stocks have fallen over the last month and…

Read more »

Investing Articles

I’d use a £10K ISA to try and generate £900 in dividends annually like this!

Christopher Ruane explains how he would invest a Stocks and Shares ISA in blue-chip companies to try and set up…

Read more »

Investing Articles

Here’s how I’d build a second income stream worth £1,228 a month by investing £10 a day!

A second income stream could come in handy later in life. This Fool explains how she’d build one by investing…

Read more »

Investing Articles

5 FTSE 250 stocks I’d buy for a lifetime of passive income

Here's why I think the FTSE 250 could be the best UK stock market index to go for in 2024…

Read more »

Union Jack flag triangular bunting hanging in a street
Investing Articles

Buy cheap FTSE shares, says HSBC

Analysts at HSBC have upgraded their rating of FTSE stocks and reckon the blue-chip UK index could carry on powering…

Read more »

Couple working from home while daughter watches video on smartphone with headphones on
Investing Articles

It could be worth buying the dip for this FTSE 250 stock, down 7% today

Jon Smith spots a sharp drop in a FTSE 250 stock but explains why this could just be a blip…

Read more »