S4 Capital’s share price is rising. Should I buy the stock now?

S4 Capital’s share price is up 250% over the last year due to the company’s strong growth. Edward Sheldon looks at whether he should buy the stock now.

| 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.

One UK stock that’s delivered excellent returns for investors recently is S4 Capital (LSE: SFOR). Over the last year, it’s risen about 250%. Is this a growth stock I should buy for my own portfolio? Let’s take a look at the investment case.

S4 Capital: business description

S4 Capital is a digital advertising and marketing company. Established by Martin Sorrell – who previously founded WPP and turned into a global advertising powerhouse – in 2018, it operates in over 30 countries. Its mission is to create solutions that embrace data, content, and technology for its clients.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

S4 clients include the likes of Google, Amazon, Netflix, and BMW/MINI. You don’t win these kinds of blue-chip clients unless you have a strong offer. Currently, it has what it calls five ‘Whoppers’ – clients with revenues over $20m per annum. Its goal is to obtain 20 Whoppers in the near term.

What I like about S4 shares

There are several things I like about S4 Capital from an investment point of view. The first is that the company is growing rapidly. Last year, it generated revenue of £343m, up 59% on the year before (like-for-like revenue was only up 15.2%).

For 2021 and 2022, City analysts expect revenue of £577m and £757m respectively. That would represent top-line growth of 68% and 31%. It’s worth pointing out that the digital advertising market is expected to grow significantly in the next five years. This should provide tailwinds for S4.

The second thing I like about S4 is the company is founder-led. Research shows that founder-led companies often turn out to be good investments. This is because these companies are usually managed with the right long-term mentality. Currently, CEO Sorrell owns around 10% of the company’s stock. So, his interests are aligned with those of shareholders.

Risks

However, I do have some concerns about S4 shares. One is in relation to the valuation. Currently, City analysts expect the group to generate earnings per share of 12.4p this year. At the current share price of 519p, S4’s forward-looking price-to-earnings ratio is about 42. That’s quite high, in my view.

I think this valuation adds a fair bit of risk to the investment as the stock appears to be priced for perfection. That said, if S4 can increase its earnings significantly in the next 12 months, it could grow into this valuation.

Another concern is that the company doesn’t have a long-term track record as it was only founded in 2018. So, it’s hard to forecast how earnings will grow in the future.

A third concern is that S4 seems quite reliant on the drive and ambition of Sorrell. He’s just turned 76, meaning retirement may not be too far away. So, there’s some ‘key-person risk’ here.

S4 Capital shares: my move

Overall, I think S4 Capital looks a good company. I could be interested in investing at some point in the future. However, right now, I think the valuation looks a little stretched. In my view, the stock has got a bit ahead of itself.

So, I’m going to keep it on my watchlist for now, with a view to buying at a more reasonable valuation.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Edward Sheldon owns shares in Amazon and Alphabet. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Alphabet (C shares), Amazon, and Netflix and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. 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.

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 considered, so you should consider taking independent financial advice.

More on Investing Articles

Female florist with Down's syndrome working in small business
Investing Articles

2 promising penny stocks to buy on the dip

As stock markets continue to correct, I am hunting for oversold penny stocks that I think could help turbocharge my…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

I wouldn’t buy Bitcoin today. FTSE value stocks look much better value to me

Now looks like a promising time to buy UK value stocks, while Bitcoin still looks far too risky for me.

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

The Rolls-Royce share price is below 85p. Here’s what I’m doing!

The Rolls-Royce share price has suffered this year. Trading for below 85p, this Fool decides whether this is an opportunity…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

4 dividend stocks to buy as inflation soars!

I'm hunting for the best dividend stock to invest in as global inflation soars. Here are several high-dividend-yield shares that…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

UK shares to buy now: 3 big fallers I’d snap up

Our writer thinks this trio of strong business performers could be attractive UK shares to buy now for his portfolio.

Read more »

Lady researching stocks
Investing Articles

Could a falling stock market help me get rich?

When the stock market falls, what does it mean for our writer's portfolio? Here's why it could be an opportunity.

Read more »

Hand holding pound notes
Investing Articles

Should I buy these two 12%-yielding dividend shares for my Stocks and Shares ISA?

Do these double-digit dividend yielders offer our author the right balance of risk and reward for his Stocks and Shares…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 reasons to buy Lloyds shares at 43p

Our writer outlines three factors that make him bullish on Lloyds shares, as well as one noteworthy risk facing the…

Read more »