Recently, the Experian (LSE:EXPN) share price has been fast approaching a new all-time high. The FTSE 100 stock has been on an upward trajectory since last March. And this course has now been accelerated following the release of an encouraging first-quarter trading update. But can it continue to climb from here? And is it too late to add this business to my portfolio?
Experian’s surging share price
As a reminder, Experian is a data services company that provides a wide range of software for businesses and individuals worldwide. Its platforms help combat fraud, provide identity management solutions, and offer various consumer services like credit card comparisons and credit score checks.
Since March, the Experian share price is up by just over 30% and it’s up over 6% in a year. That’s a pleasant sight since just a few months before, the stock took a significant hit following speculation of illegal data selling activities in Brazil. These concerns proved to be unfounded. And the share price naturally recovered as investor confidence returned. However, the continued upward momentum appears to be driven by a series of promising earnings updates, like the one released last week.
The company saw its revenue grow by double-digits worldwide. Its Asian operations reported a massive 61% growth at a constant currency rate. Revenue from North America, Latin America, and the UK came in at 26%, 31% and 20% higher, respectively. While not as high as Asia, this is still an impressive display, in my opinion. Even more so, given that the majority of it was achieved with organic growth rather than acquisitive.
What’s more, its consumer services division is also seeing an increase in demand, with total registered free users now reaching more than 116 million. Needless to say, that’s a lot of customers to upsell products to. So, I’m not surprised to see the Experian share price jump on the news.
The risks that lie ahead
As promising as the latest report was, I do have a few reservations. The business is ultimately fuelled by data collection practices, which in recent times has become somewhat controversial as more people become aware of their privacy (or lack of it) when using online services. Legislation like GDPR in Europe provides better individual protections. But it has undoubtedly created a few hurdles that the management team has had to overcome.
We’ve already seen a preview of what could happen if the business breaches privacy regulations with the Brazil incident. And suppose more restrictive legislation is brought into effect? In that case, it could make it harder for the business to continue delivering its services to customers. In this scenario, Experian’s revenue, and consequently, its share price, could take a significant hit.
The bottom line
In my opinion, I don’t think the need for Experian’s services is going to disappear anytime soon. In fact, the demand may continue to rise now that the world is starting to transition out of the pandemic. Therefore, I do believe the Experian share price can continue to climb over the long term.
Having said that, I can’t deny that the current valuation is quite rich. Based on today’s share price, Experian trades at a price-to-earnings ratio of around 50. Personally, I think there are far cheaper growth opportunities elsewhere. Therefore I’m keeping this business on my watchlist for now.
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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Experian. 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.