Share price fall presents an opportunity
Homeserve is an international home repair and maintenance business. I consider Homeserve to be a great growth stock opportunity at an enticing price just now. At the time of writing, I can pick up shares for 951p a piece. This is a 31% drop compared to levels this time last year when shares were trading for 1,381p per share. In the year to date, its share price has dropped over 10% to current levels.
Looking back over a longer period of time, I could have doubled my money if I had bought Homeserve shares fives years ago. It was trading for 581p per share in July 2016. It has made significant progress despite recent bumps in the road.
The Homeserve share price fell when it released its annual report in May for the year ended 31 March 2020. The results were a mixed bag, in my opinion. Firstly, revenue increased by 15% and customer numbers were up too. It increased its dividend as well which is always a good sign. In addition, growth in international markets was substantial, especially the US.
Homeserve saw its operating profit drop substantially. This was primarily due to a one-off charge related to its customer relationship management solution eServe, which did not work out. This cost it £84.8m. Despite this turn of events, it does not put me off as Homeserve said it would look to rectify this digital IT-related problem for the future.
In a Q1 trading update released last week, Homeserve confirmed that, although a traditionally quieter period in the year, it was still growing in international markets. More importantly for me, it said it had started work on overhauling its IT issues to ensure past mistakes aren’t repeated.
Growth stocks have risks too
I am aware of risks associated with Homeserve. Firstly, it does have a fair bit of debt on its books but I believe this is manageable, based on its past performance. Another risk which I have noted is that implementing new IT systems and policies does not happen overnight. There may be issues. If these persist long term, we could have a repeat of the eServe debacle. Finally, further restrictions may mean consumers could be forced to cut back on home repair policies, there affecting Homeserve too.
I do believe Homeserve’s profits levels will return to normality after its issues last year. It has a track record of performance which helps me make this assertion. I am aware that past performance is no guarantee of future performance. I use it as a gauge when I am assessing investment viability. As well as profits, it offers a dividend which is always a bonus.
I also believe Homeserve possesses defensive qualities based on the current climate in the world. Due to Covid-19, more people are spending time at home whether that is leisure time or working remotely. In turn, they will require maintenance and upkeep to their homes. This should keep customer numbers rising.
Overall, I think it is an excellent FTSE 250 growth stock option which I am considering adding to my portfolio for August.
Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Homeserve. 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.