I believe that Aveva Group (LSE:AVV) shares are going to enjoy another period of rapid growth as the company’s business model is a perfect fit for the post-Covid-19 digital economy.
Why many investors like Aveva
There is more than one reason why an investor may think the Aveva share price looks tempting. For one thing, there is its history. Aveva shares have roughly doubled over the last five years. They have almost quadrupled since 2010 and have increased approximately 40-fold since its stock market debut in 1997.
Other investors may be attracted by Aveva’s impressive balance sheet. The company’s assets are worth almost four times the value of liabilities, and current assets are worth only slightly less than total liabilities.
Other investors may like the latest annual report. In the year ended March 2020, revenue was up 8.8%. Profit before tax increased by 97%. Others may see the recent fall in its share price as suggesting it’s good value. And others may look at the dividend. Yield is around 1.1%, which may not seem unusually high, but that is a pretty good yield for a stock that performed so well.
All of the above represent good reasons to look closely at the Aveva share price. I have another rationale for liking the stock, however.
Why I like Aveva shares
For investors. Aveva’s appeal lies with the word ‘digitisation’. As its CEO Craig Hayman, recently said: “We are focused on being digital in everything that we do”.
We live in unusually uncertain times. No one knows how the economy will perform once the Covid-19 pandemic finally comes to an end. Even so, I think it is a pretty good bet that we will see business and industry accelerate its adoption of digital technologies, such as AI, remote collaboration tools, and the so-called internet of things (IoT). The digital economy that has been emerging during the crisis is here to stay.
Aveva helps make that digital economy happen. It is in the business of creating industrial software and providing cloud services, and the industrial IoT is fundamental to its business model.
Critics warn that Aveva is too focused on the oil and gas sector. This sector has taken a big hit because of Covid-19. Supporters respond by saying that since its recent acquisition of Schneider Electric’s industrial software business, it has become more diverse.
Indeed, in its latest report, the company emphasised how it is growing in new markets. These markets include water & wastewater utilities, power utilities, facility and campus managers, transportation operators, and data centres.
More to the point, its technology is supporting the evolution of smart cities, one of the cornerstones of the digital economy. For example, Aveva is helping create smart energy grids.
Expertise applies across sectors
The core strength of this company is its expertise. Industrial software and the industrial IoT are going to be significant growth areas in the digital economy. Aveva’s historical focus in oil and gas was the means by which it created expertise. Now its inherent technical strength can be applied to multiple sectors worldwide.
That is why I think that the Aveva share price is going to continue where it left off at the beginning of this year, and grow impressively year in, year out.
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Michael Baxter has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.