Chances to buy quality artificial intelligence (AI) stocks at discounted prices don’t come around very often. But investors might have a rare opportunity right now with Experian (LSE:EXPN) shares.
The company is one of the UK’s most obvious candidates to benefit from the rise of AI. And it’s currently trading at some unusually low valuation multiples, so investors might want to take a look.
AI credentials
Artificial intelligence looks like a double-edged sword for companies. Some are set to make much more powerful products, while others are likely to see barriers to entry fall away.
A good example is Duolingo. The stock has crashed because the company has stated that it can now make language courses much faster than before using AI.
The firm presented this as a good thing, but the market thinks otherwise. The concern is that if AI can make language courses for Duolingo, it should be able to do this for anyone else.
Experian, however, looks like it’s in a very different position. Artificial intelligence might well allow it to produce better products, but it has a unique advantage that’s almost impossible to replicate.
The FTSE 100 firm has data from over 12,000 sources, many of which would have no incentive to offer information to a new entrant into the market. That makes it almost impossible to replicate.
This means that Experian should still have a huge advantage over competitors even if AI makes it easier to create similar products. And that’s the crucial point for investors looking at the stock.
Why’s the stock going down?
Given this, there’s an obvious question as to why the price is going down. And the answer is that one of its largest markets – the US – is facing a structural challenge.
Low interest rates in 2020 and 2021 mean a lot of homeowners have very attractive mortgages. This gives them a strong reason to avoid moving, restricting the supply side of the housing market.
That’s the big challenge – and the big risk – for Experian at the moment. But the firm’s latest update gives investors a lot of reasons for optimism and the stock is unusually cheap at the moment.
Despite the challenges, organic revenue growth in the US came in at 10% in the most recent results. That’s a strong performance that highlights the FTSE 100 company’s continued importance.
The stock is also trading at price-to-earnings (P/E) and price-to-book (P/B) multiples around 25% below their averages since 2020. Given this, I think this could be the best time to take a look in years.
An unusual opportunity
Experian’s core strengths are well-known. It has a competitive position that’s virtually impossible to replicate in an industry that is extremely important.
As a result, the stock is almost never cheap and a P/E ratio of 26 is still higher than the FTSE 100 average. But this is well below its usual multiple, which is why I think this looks like an opportunity.
AI looks like a double-edged sword, but I think Experian is set to be a clear beneficiary. As a result, I’m looking seriously into adding this to my portfolio in February.
