Alternative Investment Market (AIM) stocks tend to be more volatile than those on the main market. That’s because the index is home to many high-growth companies that sometimes run into unforeseen problems.
However, even by AIM standards, the 53% fall in the YouGov (LSE:YOU) share price — since 31 May — is spectacular and unexpected.
Impressive growth
It’s a surprise because the company has a long track record of steadily increasing its earnings. During the 13 years up to and including the year ended 31 July 2023 (FY23), it grew its earnings per share in 12 of them.
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However, on 20 June, the company issued a profits warning for FY24.
The data and analytics technology group announced that it expects earnings to be 32% below analysts’ consensus forecast.
Its share price crashed 46% on the day. This compounded an already disappointing run for shareholders. From the start of 2024 to just before the announcement, the shares had fallen nearly 30%.
But as Warren Buffett famously said: “Be fearful when others are greedy, and greedy when others are fearful”.
Maybe that’s why three directors of the company have recently bought 90,496 shares at a weighted average price of £4.15. They’re collectively sitting on a profit of nearly £39,000.
My own view
When I looked at the company in February I decided to put it on my watchlist for when I next had some spare cash.
I was impressed with the firm’s growth record. And I thought the move towards machine learning and artificial intelligence (AI) would lead to further demand for the data that the business provides.
Data is often described as the most valuable asset in the world. And YouGov has loads of it.
Even after the share price fall — largely as a result of lower-than-anticipated sales in its Data Products division and reported challenges in Germany, Austria and Switzerland — I remain a fan of the firm.
I view its problems as a temporary blip rather than a sign of anything fundamentally wrong. The shares are now trading on a lower multiple than before the profit warning and I do think the market has overreacted to the bad news.
However, I don’t want to invest at the moment.
That’s because my confidence in management has taken a bit of a knock. It wasn’t that long ago — on 26 March to be precise — that YouGov said it was “confident in achieving current market expectations for the full year”.
Oh dear.
I’m also concerned about the company’s relatively high gearing. This is something I’m going to keep an eye one.
YouGov has grown largely as a result of acquiring other businesses. Much of this expansion has been funded by debt. On 31 January 2024, the company’s balance sheet included borrowings of £213.7m. This is £24.7m more than the book value (equity) of the firm.
For these reasons, I want to wait and see the next trading announcement (scheduled for 6 August) before reviewing the situation once more.
