Online data analysis and market research firm YouGov (LSE:YOU) is cashing in on data by embracing new technology, revolutionising traditional research methods and making the most of an interconnected world. Its online tools help business decision-makers globally make market research and marketing decisions, based on the data it collates. The YouGov share price is up 162% in three years and 90% since the 2020 stock market crash in March. Has it got what it takes to continue this positive run into the future?
Data generation at its fingertips
Over the years, YouGov has recruited a team of 9.6m consumer panellists, all online. This gives it a significant edge, as it can tap these panellists for survey answers at the drop of a hat. They answer regular surveys on a wide range of topics in return for points or rewards that convert into cash and prizes. With all this data at its disposal, YouGov collates and organises it online to generate up-to-date attitudes, opinions, and behaviours, which translate into valuable research for its clients.
YouGov’s customers include advertising, marketing and PR firms, media agencies, brands, and governments. It serves them the data through one of three channels: data products, data services, or custom research. It bills itself as a global public opinion organisation and has much to offer businesses and organisations in charge. This ability to deliver current opinions has served the YouGov share price well in recent years.
The recent YouGov share price rise has increased its price-to-earnings ratio to an eye-watering 53. Earnings per share grew by 35% from 6.4p to 8.7p in the second half of its 2019 financial year. They are now at 14p and it has a low debt ratio of 11%. It also offers a dividend yield of 0.5%, which although low, is better than nothing for a growth stock. YouGov has realised a rapid increase in operating margins by scaling its business through acquisitions and shifting its income streams to higher-margin products. Its chief source of income comes from the US, followed by the UK, and it also operates in Europe, the Middle East and Asia-Pacific.
It has not been hurt by coronavirus because it was already geared to operate online. In fact, this has caused its offerings to be ever more in demand, with the answers to questions like “Will Brits flock back to pubs this weekend?” and online tools such as The UK Covid-19 Public Monitor.
Is the YouGov share price overvalued?
It is common knowledge that data is like currency in the modern age, and YouGov is proof that this is true. I do not see this changing soon, and I think YouGov will continue to thrive. It’s P/E is very high, which means future growth is probably already priced in. So no, it is not a bargain buy. But the YouGov share price will be volatile while the markets remain uncertain so there could be opportunities to buy.
The global market research industry is worth a fortune, close to $50bn a year. This means there is a lot more potential for YouGov to extend its reach in this industry. I do not think the YouGov share price is necessarily overvalued as it has a powerful product and a scalable business model. As a long-term investment, I think it would be worth adding to a diversified portfolio.
Kirsteen 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.