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Just how high can the Experian share price climb?

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Experian (LSE: EXPN) is a company I’d expect to be reasonably resilient in the face of a stock market downturn, or weak economic times. Credit data, analytics, marketing intelligence… it seems to have become almost as essential a part of business these days as cash itself. And it shows in the Experian share price.

Experian shares are up 28% over the past two years, covering the entirety of the pandemic to date. Meanwhile, the FTSE 100 is still down 7%. And if that’s not enough, Experian has more than doubled over the past five years. And as well as capital growth, Experian pays dividends. Admittedly, the yield is low at around 1.5%. But I think that’s quite decent for a growth stock like this.

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The business does seem to be growing strongly, certainly as far as July’s Q1 trading update goes. To quote chief executive Brian Cassin: “Total revenue growth was 31% at actual exchange rates and 28% at constant exchange rates. Organic revenue growth was 22%, and all regions and segments delivered growth for the quarter.”

Full-year guidance lifted

That’s just the quarter, mind. He goes on to say the company expects to record full-year revenue growth of 13% to 15%, with organic growth of 9% to 11%. That represents an up-rating of the firm’s guidance from its earlier indications.

It’s good to see we’re past speculation over illegal data selling activities in Brazil, which did hit the Experian share price. As my Motley Fool colleague Zaven Boyrazian points out, it was unfounded. But he does raise what I think is an important concern. Data collection, together with its privacy implications, is becoming an increasingly controversial issue.

It’s not just governments taking a dim view of what they see as snooping. No, communications technology companies are increasingly focusing on privacy and encryption. Still, one way or another, business and marketing data will surely remain a big thing. I’m just not sure where a future plateau might lie, along with an eventual slowing of growth.

Experian share price valuation

Then I come on to valuation. On the current Experian share price, we’re looking at a trailing price-to-earnings of about 40. I reckon that could drop to around 35 on 2021’s results. That’s way above the FTSE 100 average, but do I think it’s too high? Actually, based on the potential I see for growth in Experian’s business, no. I think it might be fair, if risky, value.

At least, that’s based on my thoughts for what the next few years might bring. In the meantime, first-half figures could determine how the stock ends 2021. The results are due on 17 November, so we have some time to wait.

I’ll be looking to see how Experian’s revenue growth translates into bottom line profit. At the Q1 stage, the CEO said the company continues “to expect strong EBIT margin accretion.” That’s good, but I want to see some numbers on it.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Experian. 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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