I’m happy to report that my favourite FTSE 100 growth stock has had a bumpy few years. Why would I want it to struggle? Because it finally gave me the buying opportunity I’d been waiting for.
The company in question is London Stock Exchange Group (LSE: LSEG), which sells financial data, trading and clearing services to global investors. Its shares have powered ahead for years, making them expensive and keeping me on the sidelines.
Big FTSE 100 winner
For a long time, they traded on a lofty price-to-earnings (P/E) ratio of around 35, scaring me away. As a rule, I prefer to buy out-of-favour stocks in the hope of picking them up cheap and benefiting when sentiment turns.
I saw my moment on 10 September and finally jumped in at around £88.90 a share. The London Stock Exchange Group share price had dropped 30% in a year, shrinking the P/E to around 22 times earnings.
The shares dipped soon after and I nearly bought more but hesitated, distracted by all the talk of a possible stock market crash. I wish I’d tuned out the noise, because I missed my chance to average down.
Strong momentum
When the group published its third-quarter results on Thursday (23 October), I didn’t know whether to congratulate or kick myself. It reported total income up 6.4% to £2.22bn, with gross profits up 6.5% at £2.02bn and margins increasing for good measure.
The board also unveiled another £1bn of share buybacks, taking total repurchases to £2.5bn over 12 months, and announced a £170m investment from a group of 11 major banks in its Post Trade Solutions division.
The shares jumped 7% on the day and almost 5% on Friday. At £97.84, I’m sitting on a tidy 10% gain. I buy with a long-term view, but it’s always nice to start strong.
A lower P/E but not cheap
Today the shares trade on a P/E of about 25.7. That’s not cheap, but the company looks good for it. The ‘LSEG Everywhere’ strategy is paying off, integrating AI tools such as Microsoft’s 365 Copilot and expanding into higher-margin analytics and data services.
There are risks, of course. It we do get that crash, the London Stock Exchange Group would be at the sharp end of it. While it’s adopting AI, as always a danger is that it could be replaced by it. It operates in a competitive sector, and rivals could potentially undercut prices. But with solid cash generation and generous buybacks, I see strong long-term potential.
Long-term thinking
So what do the experts say? Consensus broker forecasts suggest a one-year price target of around 12,280p, implying a bumper 25% rise from here. While that’s not guaranteed, it’s something to aim at. Of 19 analysts covering the stock, 16 rate it a Strong Buy and two say Buy. None say Sell. So I’m not the only optimist.
The stock isn’t without risk, but I think it remains one of the FTSE 100’s best long-term growth prospects. At The Motley Fool, we’re barred from buying or selling a company within two full trading days of writing about it. Once that’s expired, I plan to buy more. I just hope the price doesn’t race away first.
