The Experian (LSE:EXPN) share price is up 18.5% over 12 months, but it pulled back on 16 July after the company’s trading update seemingly didn’t impress investors.
This drop in the share price was also likely influenced by the news that COO Craig Boundy would be stepping down from his role.
Growth to moderate
Experian provides consumer credit reporting, data analytics, and fraud prevention services, helping businesses and individuals manage financial data and protect against identity theft.
Many of us will be familiar with the company when applying for financing to buy a house or even a car. It’s technology is widely used by financial institutions to track credit.
Giving the improving economic environment, it’s perhaps unsurprisingly that Experian has reported a strong start to the year, with global revenue up 7% year-on-year for the three months ending 30 June.
The firm, driven by consumer services growth, saw its best performance in North America. Notably, its consumer services division grew 11%, with Latin America achieving 24% growth.
Despite a strong start to the year, Experian anticipates growth will slow to more normal levels in the coming quarters.
CEO Brian Cassin reaffirmed guidance for 6-8% organic revenue growth and margin accretion of 30-50 basis points for the year as a whole.
As noted above, the results were accompanied by the news Boundy would be leaving his COO role.
So is the stock cheap?
Experian’s quite expensive, trading around 32.2 times forward earnings. This could mean its priced for perfection, and investors were hoping for more from this trading update.
After all, there are very few stocks on the FTSE 100 trading with more expensive valuations than this, and that justifying this valuation is a challenge for many investors.
Moving forward, Experian’s price-to-earnings (P/E) ratio’s expected to fall to 29 times in 2026 and 25.5 times in 2027.
In turn, this leads to a price-to-earnings-to-growth ratio around 2.8. That’s certainly not something I’d get excited about.
However, investors are often willing to pay a premium for quality businesses. And with around £1.2bn of cash flow annually and with that figure set to improve, it’s certainly worth considering.
What do brokers say?
Brokerages remain fairly bullish on Experian. The stock currently has seven Buy ratings, five Outperform ratings, five Hold ratings, and just one Underperform rating.
The average share price target for the stock however, is just 6.5% above the current share price. Normally, I’d expect a larger discount for a UK-listed stock.
The bottom line
Experian’s a stock I had to sell when buying my house. And that’s a shame as it has pushed upwards since.
However, I don’t feel particularly tempted to get back in. It’s expensive relative to its growth potential. And while it’s a quality business, I feel there are better investment opportunities available.
