Down 13% in April, AIM stock YouGov now looks like a top-notch bargain

YouGov is an AIM stock that has fallen into potential bargain territory. Its vast quantity of data sets it up to succeed in the AI revolution.

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In today’s strange stock market, companies either seem really overpriced or significantly undervalued. I’d say YouGov (LSE: YOU), an Alternative Investment Market — or AIM — stock, falls into the latter camp after a big share price fall.

It’s down 45% since the start of 2022, including a 13% fall so far in April. That said, the five-year return is still a very healthy 94%.

Here’s why I reckon this falling growth stock has now entered bargain territory.

Everyone has opinions

YouGov’s vision is “to be the world’s leading provider of marketing and opinion data.”

The £1bn company acts as a bridge between consumers and businesses by collecting and analysing market research data. It then offers these valuable insights to customers through subscriptions, reports, and data licensing.

These can range from the serious to the trivial. For example, two recent YouGov studies concluded that “three-quarters of Britons support wealth taxes on millionaires,” and “50% of Britons who have seen Titanic believe that there was room for both Jack and Rose to safely occupy the floating debris and survive“.

Indeed, the changing topics and use cases are almost infinite. Moreover, YouGov has accumulated mountains of data over the years. And AI models need to be ‘trained’ on large, clean datasets.

So the company’s AI products should be reliable and powerful, giving it a durable data advantage over rival upstarts.

Attractive valuation

This is a growth company, so it’s obviously important that it’s still growing. And it is, as we can see.

Financial year (ends 31 July)Revenue Earnings per share (EPS)
2025 (forecast)£423m54.8p
2024 (forecast)£342m46.0p
2023£258m33.5p
2022£221m19.1p
2021£169m13.7p
2020£152m12.1p

Management has upped its medium-term revenue goal to £650m (from £500m), with an adjusted operating profit margin of 25%.

One risk I’d highlight here is the firm’s recent €315m acquisition of Germany’s Consumer Panel Services (CPS). Its first-half FY24 statutory operating profit declined 53% to £9.5m, mainly due to this acquisition and related debt financing. This could be a large acquisition to digest.

Still, the stock is now on a forward price-to-earnings (P/E) ratio of 19. This is a sizeable discount to what it has traded at over the last few years. And it’s cheap for a data company.

Elections are coming

I sold my holding in YouGov in early 2023 to buy large US tech stocks, which had sold off heavily.

While I certainly don’t regret that decision financially, I did sell with a bit of a heavy heart. I think this is one of the UK’s highest-quality growth stocks.

After all, businesses need to understand what the world thinks, wants, and buys. I expect that need will only increase over time, making YouGov’s services more valuable.

As we approach elections in the UK and US, political campaign strategists and news outlets will want to gauge public opinion on various issues.

So I’d imagine the company’s trusted market research will be in demand. And with YouGov’s name attached to this polling data, it’s free advertising.

Meanwhile, expected interest rate cuts should give a boost to the valuations of growth stocks.

I don’t think any of this or YouGov’s long-term potential is properly reflected in today’s 875p share price. Therefore, I’d happily re-add the shares to my portfolio with spare cash 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.

Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has recommended YouGov 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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