Could this marketing firm be the perfect growth stock?

This Fool delves deeper into a potential growth stock that specialises in marketing and customer engagement.

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So far in 2022, there has been a major tech sell-off. This is because investors have rushed towards safer, more defensive stock options in light of macroeconomic issues as well as the geopolitical events in Ukraine. Despite the sell-off, I’m looking at one tech business that could be a great growth stock. Should I buy dotDigital (LSE:DOTD) shares for my holdings?

Customer engagement and marketing

As a quick introduction, dotDigital is a marketing and customer engagement business. It provides businesses with tech-based solutions to automate and run marketing campaigns as well as customer engagement solutions to help companies keep in touch with their customer base.

So what’s happening with dotDigital shares currently? Well, as I write, they’re trading for 83p, making it a penny share. At this time last year, the stock was trading for 272p, which is a 69% decline over a 12-month period.

The bull and bear case

So let’s take a look at the bull and bear aspects of dotDigital. I’ll start with some positives.

Firstly, dotDigital operates in a burgeoning market where demand for its services is only increasing. I believe this is due to the rise in e-commerce, online shopping, and digital adoption. As a growth stock option, it could leverage this increased demand into performance and higher returns.

Next, I’m buoyed by some of the strategic partnerships that dotDigital has in place. These include deals with names such as Microsoft, Shopify, Adobe, and a recent agreement signed with McAfee. These partnerships allow it to enhance its offering as well as conferring credibility to products in the tech world, which could boost investor sentiment and performance.

Finally, at the end of July, dotDigital released interim results for the year ended 30 June 2022. Full results are expected in November. The interim results made for good reading, in my opinion. Revenue and recurring revenue increased. Operating profit is set to be ahead of expectations and a dividend is to be announced in the final results too. At present, the dividend yield for dotDigital shares stands at just over 1%. I am aware that dividends can be cancelled, however.

So to the bear case then. I believe that dotDigital shares, performance, and returns could come under pressure due to macroeconomic headwinds. Soaring inflation has caused many businesses to consider cutting costs, and marketing budgets could be slashed.

Next, with the rise of e-commerce and online adoption, competition to provide digital marketing and customer engagement platforms has increased in recent years. All these firms are vying for market share. Any one of dotDigital’s competitors could gain a competitive edge that could hinder its performance and returns.

A growth stock I would buy

To summarise, there is lots to like about dotDigital. I am buoyed by the market it operates in, as well as its great partnerships. Recent trading shows a resilient business model and resilience in the face of headwinds. I am aware of the risks too, however. Overall, I’d happily add a small number of dotDigital shares to my holdings. I believe they will recover in the longer term and boost my portfolio.

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.

Jabran Khan has no position in any of the shares mentioned. The Motley Fool UK has recommended dotDigital Group. 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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