After an 18% jump on its 2024 results, is it too late for me to consider buying this FTSE 100 hidden gem?

This FTSE 100 technology firm unveiled very strong 2024 results recently and a big share buyback, but is it too late for me to buy it now?

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FTSE 100 technology firm Sage Group (LSE: SGE) has never been top of my investment list until very recently. The technology stocks I had were all in the S&P 500 until I sold them when I turned 50 a while back. This was so I could mainly focus on UK high-yield shares that will generate me a high dividend income.

That said, my stock screener started flashing green on 20 November with Sage Group’s name. This was because its price was flying, following the release of its 2024 results. When the day’s trading had concluded, the stock had risen 18% to close at £12.70 – blimey.

After such a rise, I thought I’d see if it’s worth me picking it up at the current price.

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Is there any value left in the shares?

I only buy stocks that are undervalued on at least one of the key measures I have relied on over the years.

These separate a share’s price from its value. They are not the same thing, and the distinction is vital in making consistently high investment profits over time.

On the price-to-sales ratio (P/S), Sage Group presently trades at 5.6. This is cheap compared to the average P/S of 9.2 for its competitor group. This comprises SAP at 7.9, Salesforce at 8.7, Oracle at 9.5, and Intuit at 10.8.

It is also cheap on the price-to-book ratio at 11.9 against its competitors’ 17.3 average.

And the same applies to its price-to-earnings ratio of 40.4 against an average 64.9 for its competitors. So, there is a lot of value left in Sage Group shares, which means it’s not too late for me to buy them should I wish.

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What was in the 2024 results?

The cloud-based financial tools provider with a focus on international small-and-medium-sized (SME) businesses saw year-on-year profits soar 21% to £529m.

Annual revenues jumped an underlying 9% to £2.3bn. Crucially to me, 97% of its total revenue is recurring, including through rolling software subscriptions.

These numbers underpin a very strong balance sheet, with £1.1bn in cash and liquidity against £738m of net debt. They have also enabled the firm to announce a £400m share buyback, which tends to support stock price gains.

A risk here is the high level of competition in this sector that might squeeze its profit margins. Another is a recession in its key North American and European markets that would hit its core SME clientele.

That said, consensus analysts’ estimates are that Sage Group’s earnings will grow 11.9% a year to end-2026. Return on equity is forecast to be 44.4% by that time.

So will I buy the stock?

I am at the later stage of my investment cycle, focused on shares that provide me with high dividend income.

Currently, Sage Group yields just 1.6%, so this is way off my minimum 7%+ requirement.

That said, if I were even 10 years younger I would snap this tock up right now. It is a rare technology powerhouse in the FTSE 100 and looks set for tremendous earnings growth I think.

It is this growth that ultimately powers a firm’s share price (and dividend) higher. And I think that is exactly what will happen here.

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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.

Simon Watkins has no position in any of the shares mentioned. The Motley Fool UK has recommended Sage Group Plc and Salesforce. 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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