Up 70% since its IPO, is this one of the best shares to buy now?

Paul Summers takes a closer look at what, in retrospect, was one of the best shares to buy back in March. Is this still the case 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.

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.

2021 has seen a flood of IPOs. Some have failed to inspire investors. Others have probably delivered beyond their wildest expectations. One clear example of the latter is the review platform Trustpilot Group (LSE: TRST). Its stock is up 70% since coming to the market in March. Should I, therefore, consider this FTSE 250 member as one of the best shares to buy now?

Trustpilot: what’s it all about?

While relatively new to the stock market, Trustpilot has actually been around for 14 years. Its aim is to “foster trust and inspire collaboration“. It does this by allowing shoppers to submit reviews of businesses, thereby allowing other consumers to gain an understanding of whether it’s worth dealing with them. It also gives the businesses an opportunity to improve operations based on customer feedback. 

As a consumer, I can’t deny that I’m influenced by online reviews. If I know something I need works well based on what other people have to say about it, I’m more likely to buy. It’s a form of ‘social proof’ — the tendency for us to copy what others do if we can see that whatever decision they’ve made has benefited them. With 120 million reviews on its site by the end of last year, Trustpilot is perfectly set up to take advantage of this powerful psychological urge.

So, business is good?

Yes, it seems so. In its most recent update, the company said that it had grown revenues by roughly 31% over the first six months of 2021 compared to the previous year. It now expects these to be $62m when it officially confirms interim numbers on 15 September.

The fact that a lot of revenue is also recurring is something I really like since it gives the company a good degree of visibility. Throw in a market that only looks likely to grow in the years ahead due to the huge rise of e-commerce and Trustpilot’s recent performance makes sense.

And the risks?

One rather obvious thing to highlight is that Trustpilot doesn’t make a profit. So, I do wonder what might happen to the share price when the next market correction or crash arrives. I know I’d probably want to be holding some more established companies when it does.

It’s also apparent that Trustpilot’s platform has the potential to be abused through the proliferation of fake reviews. Earlier this year, the company said that it had removed more than 2 million dodgy entries over the previous year. Sure, most of this was done via automated software. However, this does send a message to me that I can’t be absolutely sure that what I’m reading is genuine. And if I can’t completely trust what I see on Trustpilot, would I want to own a slice of it?

Third, I’m questioning how strong the economic moat (if any) is here. Trustpilot is a giant in this space. However, most successful companies eventually attract competition. 

On the sidelines

TRST is certainly an interesting proposition. Is it one of the best shares to buy right now though? As good as its performance has been, I can’t say I’m desperate to own the stock yet. A valuation of almost £2bn looks full enough to me.

Whether I get it or not, I’m content to sit on the sidelines for a better opportunity to buy.

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 of the shares mentioned. 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.

More on Investing Articles

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

2 reasons why I’m loading up on FTSE 100 shares

This Fool thinks FTSE 100 shares look cheap. With that, he plans to continue snapping them up today. Here's one…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Why wait? I’d buy FTSE 100 shares now before the next stock market rally!

Our writer explains why he'd snap up what he sees as bargain FTSE 100 shares now rather than waiting in…

Read more »

Investing Articles

Is it time for me to change my tune about Rolls-Royce shares?

This Fool has steered clear of buying Rolls-Royce shares. But after its recent performance, he's reconsidering his stance. Here's why.

Read more »

Investing Articles

Aviva share price: 3 reasons to consider buying for 2024

The Aviva share price is still lower then when I bought some nearly a decade ago. Here's why I'm thinking…

Read more »

Front view photo of a woman using digital tablet in London
Investing Articles

These 2 shares could bank me £328 a month in second income

Jon Smith runs through two FTSE stocks that have above-average dividend yields that could pay out a generous second income…

Read more »

Stack of one pound coins falling over
Investing Articles

This passive income plan is simple – but could earn me thousands!

Christopher Ruane explains how putting a fiver a day to work in the stock market might help him earn thousands…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Charticle

After record profits, are Lloyds shares a buy, sell, or hold?

As Lloyds pulls in pre-tax profits of £7.5bn, boosts its dividend, and continues to repurchase shares, are the company’s shares…

Read more »

Investing Articles

NatWest shares: is a once-in-a-lifetime opportunity on the way?

Should investors get ready for a unique opportunity as the UK government plans to sell off its NatWest shares later…

Read more »