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This top growth stock is absolutely thrashing the FTSE 100. Would I buy?

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Global information services company Experian (LSE: EXPN) is a stock that just keeps climbing and climbing. Its 10-year share price chart shows a steady uphill trajectory and today’s preliminaries for the year to 31 March enjoyed a warm reception, although not an ecstatic one.

So can this £20bn FTSE 100 growth hero continue its upwards trajectory? I reckon it can, even though it looks a little pricy today.

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Good credit

The credit ratings specialist has just posted 10% organic revenue growth for the fourth quarter, and full-year growth of 9% at constant exchange rates (falling to 6% actual). Earnings per share (EPS) also rose 9% at constant exchange rates (4% actual), from 94.4 US cents to 98 cents per share.

Profit before tax rose 7% to $957m on a statutory basis, based on revenues of $4.9bn, although again, this fell to just 1% at actual exchange rates.

Good year 

CEO Brian Cassin nonetheless hailed “a very good year for Experian”, as it enjoyed “strong and broad-based growth with exciting new offers for consumers and businesses”

Experian enjoyed strong growth across all regions but notably in North America and EMEA/Asia Pacific. Its B2B arm posted organic revenue growth of 9% helped by new sources of data and new product innovations, and 6% for its Consumer Services operation. Benchmark EBIT grew 10% at constant exchange rates (5% actual).

The group continues to expand, attracting 600,000 US customers to its new offering Experian Boost, and expanding its presence across Africa by completing the acquisition of Compuscan for $263m.

Experian needs to keep delivering the goods because it currently trades at a thumping valuation of 24.2 times forward earnings, while its shares trade at 5.1 times earnings. That explains today’s relatively muted market response. It met (high) expectations, but didn’t surpass them.

You have to remember that the share price is up almost 30% in the past 12 months, and 104% over five years, against just 6% on the FTSE 100. It will be a challenge maintaining that pace. However, management said it should continue to grow in the new financial year, at an underlying rate of between 6% and 8%. As Rupert Hargreaves has pointed out, EPS have grown at a compound annual rate of 29% since 2013.

Nice return

Return on capital continues to be strong at 15.9%, up 40 basis points on last year’s 15.5%. Experian is vulnerable to an economic slowdown, as demand for credit checks tends to rise when people are feeling buoyant and looking to buy homes and borrow money. So that is one potential headwind, although a slowdown is a challenge to almost every company.

Another thing I like is that the group does not require massive expenditure, because the business is driven by data and doesn’t need, say, heavy plant and infrastructure. It enjoys a stonking 311.6% return on capital employed.

Progressive values

At first sight, the yield disappoints, currently a forecast 1.8%. However, that is partly due to the strong share price performance. Cover is 2.2, and today management announced a 4% rise in the total full-year dividend  to 46.5 US cents per share. It is also pursuing a $400m share repurchase programme. I’d buy.

I’m happy to say I praised Experian earlier this year, along with another FTSE 100 company you might also consider buying.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Experian. 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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