YouGov (LSE: YOU) has done it again and released good results sending the share price higher.
The full-year report delivered on 10 October 2023 is stuffed with good figures. And the stock rose by more than 10% on the day.
A realistic valuation
I last wrote about the international research and data analytics company three years ago. And back then the share price stood at 938p.
But there’s been some impressive double-digit percentage annual growth in earnings every year since. And the stock now changes hands at a whopping … 780p.
So what’s happened, and is this a value opportunity? Maybe. Back in October 2020, I recorded the forward-looking earnings multiple for one year out as “just above 50”. But now it’s around 18.
City analysts expect earnings to advance by about 13% next year. So, the valuation is more realistic than it was before. And three years ago, it was excessive.
However, YouGov is doing a good job proving its credentials as a consistent growth business. And for that reason, it’s worth watching.
There’s even a chance that further and deeper research could help to identify the stock as a potential long-term holding even after the recent uptick in the share price.
A volatile share price
However, there are some risks for investors here. There’s been a powerful downtrend in the stock since the end of 2021. And that situation has been made worse by the small-cap bear market we’ve seen – especially for FTSE AIM stocks like this.
AIM has a reputation for having many low-quality businesses in its ranks. Nevertheless, this isn’t one of them. In fact, it’s a rare jewel among the slag.
But the downtrend is worrying and it looks like investors are expecting growth to dry up, or at least to slow. And that will happen in the end – it does with all businesses as they become larger. YouGov is no minnow with its market capitalisation around £800m.
The general economic and geopolitical turbulence of the last three years hasn’t helped investor confidence either. And it’s easy to be sceptical about YouGov’s earnings. Surely the business has inherent cyclicality and will suffer at some point?
Earnings have been resilient
Well, we’re still waiting. Normalised earnings growth for 2021, for 2022 and 2023 looks like this: 13%, 40% and 70%!
Looking ahead, new chief executive Steve Hatch said demand for the company’s products and services is strong. And there’s “continued new business momentum, high renewal rates and sticky customer relationships”. Hatch is “confident” in the firm’s prospects for the current trading year to July 2024.
Meanwhile, the company is in the middle of the process for acquiring German market research company GfK‘s consumer panel business. And the directors expect the deal to “significantly enhance the group’s offering to US clients”.
Growth is far from being dead in the water here. And the balance sheet looks strong. The lower level of the valuation looks like an opportunity for long-term focused investors rather than a threat. And I’d consider the stock now for inclusion in a diversified portfolio.
