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My 2021 UK share pick rose 27%. I’d still buy

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Just over a year ago, I made my top UK share pick for 2021. Of the companies that I could have added to my portfolio at that time, I was attracted by one that had already enjoyed a stellar 2020. Despite that, it increased in value by more than a quarter over the course of last year.

Even after that share-price rise, I continue to be attracted by the company!

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2021 performance of my top UK share pick

The company in question is digital ad group S4 Capital (LSE: SFOR).

In 2021, the S4 Capital share price rose 27%. The company does not pay any dividends. So, if I had invested £1,000 in S4 at the start of the year, my stake would have begun 2022 valued at approximately £1,270.

In fact, I could have done better than that. If I had bought at the start of 2021 and sold when the S4 Capital share price reached its high of £8.78 in September, I could have bagged a 76% return in a matter of months. In reality, though, I would have been unlikely to call the share price with that precision. I don’t try to focus on market timings. Instead, I try to find great companies I can buy and hold for the long term (Foolish investing, rather than foolish investing!)

I didn’t sell my S4 stake because, no matter what the share price was doing, my long-term investment thesis about the company remained intact. I continued to be bullish on the digital ad group’s outlook. That didn’t change just because its share price had given up some gains. Instead, I saw the pullback as a buying opportunity and added more S4 Capital shares to my portfolio.

What about 2022?

After its fall in recent months, the S4 Capital share price is well below its former highs. On top of that, bears could continue to push it down. It has tumbled 7% in today’s trading, at the time of writing.

That reflects worries among investors that the company may have got ahead of itself previously. With a large roster of tech clients, concerns about overvaluation in the tech space seem to be dragging S4 down in their wake. If tech clients tighten their belts – for example, because they find it harder to raise new capital – that could hurt revenues and profits at S4.

That’s not the only risk. S4’s rapid growth means it now has over 7,000 staff. Last year, it said it would likely need to raise spending because of its increasing size. That could hurt profitability.

Despite that, the S4 bull case I saw for 2021 still holds for 2022 in my view. Digital advertising spend has long-term growth tailwinds. S4 is well positioned to benefit from them. It has a growing global footprint, recognised expertise and a war chest to fund more acquisitions. The company expects to double revenues and profits organically in its current three-year plan. On top of that, it has been active in buying firms to boost growth quicker. I added to my S4 position in 2021 and would consider buying more shares at the current price!

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Christopher Ruane owns shares in S4 Capital. 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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