In general, 2023 has seen something of a growth stock rally. Investment platform Vanguard’s growth index is up 36% since January, compared to a 3% gain for its value index.
The rally in growth stocks makes it difficult to find shares trading at attractive prices. But there’s one exception in particular that’s catching my eye at the moment.
Experian (LSE:EXPN) has largely sat out the recent rally in growth stocks. The company’s share price is down 2% since the start of the year.
To an extent, this makes sense. The business is a credit bureau, which means that demand for its services is likely to fall when higher interest rates make debt more expensive.
Despite this, Experian has proved fairly resilient. At its most recent update, management reported 5% revenue growth during the second quarter of 2023.
On top of that, the business has some attractive long-term characteristics. This is why I see the short-term weakness in the share price as a buying opportunity.
As a FTSE 100 company, it’s easy to attribute the struggling share price to a difficult UK macroeconomic environment. And while there’s some truth here, I think this is a mistake.
It’s worth noting that the UK only accounts for around 12% of the company’s revenues. The firm has much more exposure to the US economy, where 67% of sales come from.
With inflation around 3% (vs 6.8% in the UK), the US appears to be nearing the end of its interest rate increases. This helps explain why Experian’s business is holding up well.
I’m expecting this to continue. And if it does, this should be positive for the company’s share price, making this a good time to buy the stock.
Experian shares clearly aren’t cheap. But the company is a growth stock, so where is the growth going to come from?
I think there are four main avenues – one first is organic growth, another is acquisitions, and a third is share buybacks. The most significant though, is expansion.
Over the last few years, Experian has been working to establish its presence in Latin America. That part of the business currently brings in 15% of the company’s revenues.
More importantly, revenues from this part of the business are growing at 13%. There’s a potential big market for the company, which is where I see the growth coming from.
Should I buy?
Despite a slow 2023, Experian’s shares don’t look obviously cheap. The stock still trades at a price-to-earnings (P/E) ratio of 40.
Buying a stock at that level is a risk. The growth the market is expecting needs to come through, or the investment could turn out badly.
I think there’s a good opportunity here though. If the company grows its earnings at 10% a year, today’s price will represent a P/E ratio of 16 by 2033.
Growth investors need to be willing to wait for earnings to develop, but I think Experian will reward patience. That’s why I’m looking to buy the stock this month.