UK investors have been piling into this £1 growth stock. Should I buy too?

This £1 growth stock is currently getting a lot of attention from small-cap investors. Here, Edward Sheldon looks at the investment case.

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One UK growth stock that has been getting a lot of attention recently is Equals Group (LSE: EQLS). It’s an AIM-listed FinTech company that develops and sells scalable payments platforms.

Is the stock – which currently trades for just over £1 – worth buying for my own portfolio? Let’s discuss.

A look at the business

Equals offers a range of solutions designed to help organisations and individuals manage their money flows better.

Its brands include:

  • Equals Money – A platform that offers multi-currency accounts, international and domestic payments, business expense cards, and more
  • Equals Money Solutions – An enterprise version of the Equals Money platform that serves large corporates and financial institutions with complex payments needs
  • FairFX – An international payments service designed for high-net-worth individuals and international holidaymakers
  • CardOneMoney – A UK-focused product designed to help small businesses and individuals manage everyday account processes (payments, direct debits, etc)
  • Equals Connect – A white label platform serving smaller FX providers

It’s worth noting here that several of these services have really good reviews. For example, on Trustpilot, both Equals Money and FairFX have a rating of 4.7. That’s impressive. By contrast, Wise has a rating of 4.2.

Impressive growth track record

Now, doing some research on Equals, a few things stand out to me. Firstly, this is a company with a decent growth track record.

Over the last five years, revenue has climbed from £15.5m to £69.7m. That represents a compound annual growth rate (CAGR) of 35%. For 2023, analysts expect revenue of £95.3m – growth of 37%.

Secondly, the valuation here is not very high. Currently, the forward-looking P/E ratio is only about 15. That seems low given the company’s growth rate.

Additionally, the company recently put itself up for sale.

Earlier this month, Equals advised that after a strategic review, it had contacted a limited number of potential counterparties to assess whether they could put forward a proposal (ie, a bid) that would deliver greater value to shareholders than pursuing a standalone independent strategy.

If a bid was to materialise, it may be at a premium to the current share price.

Should I buy?

While this all sounds pretty positive, I’m going to hold off on buying the growth stock for now.

For a start, a bid may not come in. It’s worth noting here that on one stock forum, a FinTech expert pointed out that Equals’ focus on both businesses and retail consumers could be a sticking point for buyers. Given the firm’s dual focus, it might have to be broken up.

Meanwhile, the company operates in a really competitive space in which it’s hard to create a genuine competitive advantage. And it doesn’t have the track record of profitability that some other players have.

Finally, I already own shares in Alpha Group International, which operates in this industry (and has a better track record in terms of profitability than Equals).

Weighing everything up, I just think there are better opportunities in the stock market for me right now.

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.

Edward Sheldon has positions in Alpha Group International. The Motley Fool UK has recommended Alpha Group International and Wise Plc. 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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