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Is FTSE AIM growth stock dotDigital among the best shares to buy now?

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dotDigital Group (LSE:DOTD) provides Software as a Service (SaaS) technology and tools for digital marketing professionals. Since I last wrote about it in October, its share price has climbed another 12%. This UK tech stock is shaping up to be an exciting growth story in an environment where digital marketing is growing at a rapid pace. Could this FTSE AIM stock be among the best shares to buy now?

Embracing the digital world

In its financial year to June 2020, dotDigital spent over £6.4m investing in its future. This includes investing in the development of innovative technology products for marketing professionals.

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The company is ambitious and has created an enviable SaaS and marketing automation platform. This gives its clients the freedom to connect with customers at opportune moments, targeting its messages to specific individuals. It’s a timely product in an increasingly digital world.

Marketing is evolving, and technological advancements are propelling businesses into this widening digital space. To that end, dotDigital aims to be the go-between that helps its clients strategise, scale and grow their businesses. It does this with its well-targeted customer acquisition and retention methods, which it develops in-house.

International growth opportunities

It has big plans to grow internationally and has already struck up collaborative relationships with US e-commerce giant Shopify and other key players in the digital space. Plus it’s focused on embedding artificial intelligence (AI) technology in its product offerings. It makes a lot of money from its clients but is clearly providing them with value and that is helping it grow.

This ambition for expansion may also propel it to hunt for acquisitions. On this front, Covid-19 is a double-edged sword. It could leave some of dotDigital’s clients in financial trouble, unable to pay their outstanding bills. But it could present the chance for it to buy out struggling competitors too. Being cash rich, acquisitions could be on the cards.

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Bullish sentiment boost dotDigital share price

The share price has risen over 62% in the past year and it offers a dividend yield of only 0.5%, based on its current price. But it has plenty of room to grow the dividend. In its 2020 financial year, it raised its dividend 24% over 2019. Earnings per share are 2.8p and its price-to-earnings (P/E) ratio is a very high 57. Yet these days it’s rare to find a quality growth stock in the bargain basement. I think it’s also worth noting that the dotDigital share price has been on a steady upwards trajectory for the past five years, showing momentum and resilience. 

Being expensive means it may not be among the absolute best shares to buy now, as there are other investments I’d prefer to add to my portfolio. That being said, given the collective embrace of technology and ever-increasing opportunities to market to consumers, I think the dotDigital share price has further to climb. I’m tempted to invest as I think it’s a growth stock with a lot going for it. However, I think the ongoing Covid-19 crisis poses a concern that shouldn’t be ignored. Therefore, I’ll wait to read its interim results, which are due next month.

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Kirsteen has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Shopify. The Motley Fool UK has recommended dotDigital 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.

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