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UK stocks: this is one of my best ‘buy’ ideas for 2021

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The UK stock market is very much a stock picker’s market, I feel. Holding an index tracker fund hasn’t produced strong returns of late. However, plenty of individual British stocks have delivered incredible returns.

Here, I’m going to highlight what I see as one of my best UK stock ideas for 2021 and beyond. I think this company has the potential to deliver big gains for investors like me in the long run.

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A top UK stock I’d buy for 2021

Keystone Law (LSE: KEYS) is an innovative ‘platform-based’ challenger law firm that is disrupting the legal industry. The key difference between Keystone and other more traditional legal firms is that it enables lawyers to work from home or their own offices. This means that the company is extremely scalable.

Currently, Keystone has over 350 lawyers on its platform. However, the group believes that its addressable market is nearly 50,000 lawyers, which means there’s enormous growth potential here. And in a post-Covid world – where many lawyers have had a taste of working from home – I think the company should have no problems at all recruiting highly-skilled professionals to its platform.

Strong growth track record

Keystone’s growth track record is impressive. Between FY2016 and FY2020, revenue rose from £21m to £50m – a compound annual growth rate (CAGR) of 24%.

Meanwhile, last year, performance held up well. Often during recessions, legal firms can struggle. This is because demand for some legal services, such as those associated with transactions, can decline. However, for the year ending 31 January 2021, revenue is expected to increase about 5%. And in December, the group said that it expects to deliver profits for the year comfortably ahead of current market expectations.

If the company can deliver this kind of performance during the worst UK economic conditions in 300 years, imagine what it could do when the economy picks up. It’s worth pointing out that for the year ending 31 January 2022, analysts expect revenue growth of 15% and net profit growth of 19%.

Why I’d buy this British growth stock

Aside from its growth potential, there are a number of other things I like about Keystone Law.

First, the company appears to have a competitive advantage over its rivals. Recently, it was named ‘Law Firm of the Year’ at the prestigious Lawyer Awards 2020.

Second, the business is extremely profitable and has no debt. Over the last three years, return on capital employed (ROCE) has averaged 26%. Highly-profitable companies with strong balance sheets that are growing at a fast pace often turn out to be excellent long-term investments.

Third, founder and CEO James Knight owns over 30% of the shares. This means that management’s interests are aligned with those of shareholders.

And finally, City analysts are currently upgrading their earnings forecasts for the company. This should support the share price.


Of course, there are risks to be aware of here. Keystone Law is a small-cap company with a market cap of just £160m. This means that its share price could be volatile.

And the valuation doesn’t leave a huge margin of safety. Currently, the forward-looking P/E ratio is about 33. If the group’s near-term financial performance is disappointing, the shares could fall.

Overall, however, I think this UK stock offers an attractive risk/reward proposition. I hold this stock and in my view, Keystone Law has the right ingredients to be a winning investment.

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Edward Sheldon owns shares in Keystone Law. 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.

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