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2 reasons why I think The Hut Group (THG) shares are a top buy right now

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After The Hut Group (LSE:THG) went public last year, I wrote an article on how I thought the stock was a good buy. Unfortunately, given the number of stocks I cover, I didn’t get around to purchasing THG shares at the time. This proved to be my loss, since from the issue price of 500p, they currently trade around 668p. Yet given that the shares traded close to 800p at the beginning of this year, I think the current price looks attractive.

A diversified business

THG shares soared following one of the largest London tech IPOs ever. In contrast to some recent IPOs, the share price rallied and has managed to hold on to those gains. 

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Rewinding a little, what exactly does THG do? It’s a good question since the business is quite diversified. It’s split into Beauty, Nutrition, OnDemand and Ingenuity divisions. Some of these operations help other brands improve their direct-to-customer sales ops. It also owns brands that sell to customers. For example, the Nutrition arm houses MyProtein, a sizeable company by itself.

So in my opinion, it’s fairly unique in that it both owns brands and also helps other brands to improve. In such a way, it has the benefit of being a technology firm, but also of gaining revenue from more traditional methods via retailing products.

That’s one of the primary reasons why I think THG shares could continue to grow in the future, as the diversification of the business allows it to weather the storm of any of the individual markets.

A positive outlook for THG shares

Another reason I’m positive on THG shares is due to the outlook given by the management team in the latest trading update. The update commented that “following the strong momentum with which THG has finished 2020…management now expects FY 2021 revenue growth to be between +30% and +35% ahead of FY 2020”.

This outlook is on the back of FY20 results that showed revenue up 41.4% versus the previous year. The rapid nature of such revenue growth is definitely not something I see often, and so is something very attractive to see for a potential investor.

Despite all the positive signs, there are still risks for me if I choose to buy now. One that’s on my mind is trying to assess whether the current price of THG shares is fair or not. It’s hard to put a valuation on the business, given the different areas it operates in. Should I value it like an online retailer? Or as a tech solutions firm? Or as a marketing consultancy?

Each type of business would get a different value, and I’m not sure which one most accurately reflects THG. Although this is a risk, I’m not the only one in this boat, so I don’t see it as something that counts against me making a decision.

Overall, I think THG shares have good potential to grow in line with the business. So I’m keen to not miss the boat on Round 2, and am looking to buy shortly.

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jonathansmith1 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.

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