Theresa May just did this growth stock a huge favour

The pound leapt and UK equities fell after Prime Minister Theresa May’s press conference disclosing plans to push for a snap general election on June 8. But the 4% leap in the share price of pollster YouGov (LSE: YOU) after the announcement shows not all stocks were damaged by the news.

This sharp rise in share prices for the company is understandable as we’re now in line for seven straight weeks of non-stop general election coverage with struggling newspapers and broadcasters alike desperate to attract attention. For YouGov, which made its name years ago as a reliably accurate political pollster, this means plenty of free publicity as its latest weekly poll results are pored over by political commentators and included in myriad news reports.

Greater publicity and an uptick in custom polling contracts from media outfits and political parties should bolster what is already impressive growth for the AIM-listed small-cap. In the six months to January 31, the company’s sales rose 24% year-on-year in real terms and 8% when adjusting for the positive effects of the weak pound.

Smarter growth

And more importantly, operating profits rose a whopping 41% as the company benefitted from higher margins in each of its largest markets and refocused growth away from the relatively low-margin custom polling for which it is known.

Instead, the founder-led management team is concentrating on growing the data products & services divisions that provides companies with access to its poll results covering the effectiveness of ad campaigns, the buying habits of every major demographic and consumers’ brand perceptions, among other data points.

As these divisions merely sell companies data that has already been collected, rather than having to commission custom research, margins are considerably higher. In the latest half-year results, operating margins for the data divisions were 24% compared to only 12% from the custom polling division.

This is why investors should be ecstatic that these more profitable data divisions accounted for all of the company’s growth in the past half year, with a 23% rise in constant currency like-for-like sales during the period. It’s also possible that this rapid growth is entirely sustainable as the company’s 32 worldwide offices are well positioned to provide locally relevant data to the roster of multinationals such Google, Facebook, Walmart and Bank of America it already counts as clients.

So what’s the verdict?

Investing in AIM-listed firms such as YouGov is always risky, but the company does have a few key characteristics that should lessen investors’ worries. For one, it is solidly profitable and has been for some time. This has helped maintain a very healthy balance sheet that recorded £15m in net cash at the end of January. And the company is still led by co-founder Stephan Shakespeare, who owns 7.1% of the business so has significant skin in the game.

At 25.7 times forward earnings, the firm’s shares aren’t cheap. But with earnings growing at double-digits and Theresa May’s snap election set to increase sales in the short term and brand awareness in the long term, this may be a great time to take a closer look at YouGov.

But if you’re looking for a more sanely priced small-cap, I recommend reading the Motley Fool’s free report on a Top Small Cap that is trading at a bargain eight times trailing earnings. This low valuation doesn’t mean low growth though as the company has recorded four straight years of double-digit earnings growth.

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Ian Pierce has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Alphabet (C shares) and Facebook. 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.