The Motley Fool

£2k to invest? I think this FTSE 100 bargain could return 45%!

Image source: Getty Images

One blue-chip stock stands out to me as a FTSE 100 bargain right now. That company is accounting software business Sage (LSE: SGE).

FTSE 100 bargain

Accounting software is, in many ways, quite a defensive business. As any small business owner who has used accounting software regularly will tell you, finding a good software package is vital. And once you found one, changing to something else can be a nightmare.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Therefore, companies like Sage tend to have a steady and predictable income stream. That suggests that the coronavirus crisis might not have a considerable impact on the group.

Although Sage will probably lose some of its customers over the next few weeks and months as businesses struggle to survive, its customers that remain solvent are unlikely to be changing their software providers at such a challenging time.

Recent trading updates from the business support this view. In a trading update published on the 6 April, the company declared that organic growth in recurring revenue, which is 90% of total group sales, was ahead of forecasts for the six months to the end of March.

However, the company also said it is impossible to quantify the impact the coronavirus crisis will have on sales at this stage.

With that being the case, management expects organic recurring revenue growth will be below the previously guided range of 8% to 9% for the current financial year.

This forecast is disappointing, but compared to other FTSE 100 stocks, it’s quite good.

Indeed, many of Sage’s blue-chip peers are now forecasting a decline in revenues for the full year. The company stands out for the fact that it is still expecting organic growth.

That’s why Sage looks to be a FTSE 100 bargain at current levels. After recent declines, the stock is trading at a price-to-earnings (P/E) ratio of 21. This is below its long-term average of around 25.

On top of this, the group also appears committed to its dividend. Management has suspended the company’s £250m share buyback – to shore up liquidity – but the dividend is still in place. After recent declines, the stock supports a dividend yield of around 3%.

Handsome returns 

Considering all of the above, it looks as if this FTSE 100 bargain could deliver handsome returns for investors over the next 12 to 24 months. Before the coronavirus outbreak, shares in Sage were trading at around 810p.

A return to this level could produce a capital gain of nearly 39%.

On top of this, the company’s 3% dividend yield will add another 6% over the next 24 months. This implies that investors buying today could see a total return of around 45% over the next two years.

With so many FTSE 100 stocks cutting their payouts to shareholders and warning on profits, Sage stands out as a FTSE 100 bargain in stormy waters.

As such, if you’re looking for a high-quality stock to buy in the current market, it might be worth taking a look at this UK software champion.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Rupert Hargreaves owns no share mentioned. 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.