The FTSE 100 index recently had its worst quarter in over 30 years. As a result, many top companies’ share prices are now significantly lower than they were at the beginning of 2020.
If you’re a long-term investor, these lower share prices could be a real opportunity. After all, the key to making money from stocks is to buy low and (eventually) sell high. With that in mind, here’s a look at a high-quality FTSE 100 company that I believe is worth buying for the long term today.
FTSE 100 champion
Sage (LSE: SGE), a leading provider of cloud-based accounting software, has seen its share price tank this year. Back in early January, the FTSE 100 stock – which is held by two of the UK’s top portfolio managers – was trading at around the 750p level. Today however, it trades for around 575p – nearly 25% lower.
Of course, due to the coronavirus outbreak, there’s now considerably more economic uncertainty than there was in early 2020. So it makes sense that Sage’s share price has declined. However, the company’s long-term growth story remains attractive, which leads me to believe that the stock could potentially deliver strong long-term gains from here.
What distinguishes Sage from many other FTSE 100 businesses is the fact that the company operates in a high-growth industry. With businesses around the world increasingly focusing on becoming more digital, the demand for cloud-based accounting solutions is on the rise. Indeed, according to a recent report by research firm Market Study Report LLC, the market for such solutions is set to grow at a rate of around 6.4% per year between now and 2025, which is certainly a healthy rate of growth.
It’s also worth noting that Sage believes that its total addressable market is 72m businesses. Given that it only has around 3m customers now, this suggests there’s substantial room for growth.
In terms of the impact of the coronavirus, the company’s profits will most certainly take a hit in the short term. Earlier this week, the group advised that it was expecting a higher rate of customer churn due to business failures. It also said that it was expecting customers to defer purchase decisions. Organic recurring revenue growth is now expected to be below the previously guided range of 8% to 9%.
However, the FTSE 100 company also said that it has a strong balance sheet with a low amount of debt, and that it is a “resilient” business supported by high-quality recurring revenues. It added that Covid-19 disruption supports the adoption of cloud-based accounting solutions due to the fact that they enhance business flexibility (i.e. remote working).
Importantly, the company did not announce a dividend suspension.
Long-term FTSE 100 buy
Overall, there’s a lot I like about Sage from a long-term investment view.
The company has a high degree of recurring revenues, is very profitable, and is financially sound. It also has an attractive growth story.
The share price down nearly 25% year to date. I think now is a good time to be building a position in this high-quality FTSE 100 company.
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Edward Sheldon owns shares in Sage Group. The Motley Fool UK has recommended Sage Group. 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.