Should I buy this FTSE 100 growth stock?

Jabran Khan delves deeper into this FTSE 100 growth stock. He decides, based on recent performance and outlook, whether he would add the shares to his portfolio.

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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.

Since the pandemic began, education and its delivery methods have changed. With this in mind, I want to know if FTSE 100 incumbent Pearson (LSE:PSON) could be a good addition to my holdings. Let’s take a look.

Publishing and educational materials

Often best known as an international publishing house, Pearson actually makes most of its money from the educational arm of the business through its e-learning and educational materials. It has a presence in over 200 countries and is supported by approximately 20,000 employees. 

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As I write, Pearson shares are trading for 616p. At this time last year, the shares were trading for 723p, which is a 14% drop over a 12-month period.

For and against investing

FOR: Pearson’s recent performance tells me that a pandemic-related hangover could be a thing of the past and things have turned a corner. In addition to this, there could be some growth opportunities in the future. Pearson reported in a post close update that sales were up by 8% and demand was high. It expects to report a profit of £385m, up 33% from last year.

AGAINST: I believe Pearson’s biggest threat is competition. Many smaller firms have been attempting to gain market share and prize this away from the FTSE 100 incumbent. Pearson is dominant right now, but a serious competitor emerging with a new product or solution for educational materials could hinder any growth and returns.

FOR: Pearson is in a great position in its marketplace, despite other firms attempts to chip away at its dominance and market share. Its brands are highly respected throughout the world and known for their quality. I believe it can leverage its position to dominate the market in the coming years. As the pandemic eases and economic recovery continues, and as the world continues to digitise, Pearson could grow and provide some lucrative returns.

AGAINST: At the height of the pandemic, Pearson’s growth was an issue as educational enrolment slowed. There is a risk that even though the pandemic may ease, there could be less demand for higher education services, and less demand for its products in the years ahead. These days youngsters have many more options than going straight into higher education after leaving school. This could hurt demand for Pearson.

A FTSE 100 stock I’d buy

Due to macroeconomic factors in recent months, there has been a stock market correction. This has actually thrown up some bargains and I have changed my position on stocks I previously would not have considered for my holdings. Pearson is one of them after its recent results and outlook ahead as well as some other fundamentals. 

At current levels, I think Pearson could be a good stock for my holdings and I would buy the shares. As well as its excellent market leading position, recent results point towards high demand and growth for the future. The shares also currently look cheap with a price-to-earnings ratio of just 16. Finally, as a bonus, Pearson sports a dividend yield of 3%, which would make me a passive income too. It is worth noting the FTSE 100 dividend yield average is 3%-4%.

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Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Pearson. 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.

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