I think Informa‘s (LSE:INF) one of the UK’s best growth stocks. But earlier this week, the stock fell 8% in a day after releasing its preliminary results for 2024.
At a price-to-earnings (P/E) ratio of around 37, the stock looks expensive. Despite this, it’s on my list of stocks to consider buying right now.
Conferences and trade shows
The main part of Informa’s business comes from running conferences and trade shows. And these have a lot of very attractive prospects from an investment perspective.
First and foremost, they have extremely strong competitive positions. They’re the biggest and most important trade events for industry participants to attend.
Evidence of this comes from the fact the company has recovered so well from the Covid-19 pandemic. Despite a temporary shift online, live trade events have proved irreplaceable.
As a result, revenues are well ahead of their 2019 levels. The disruption notwithstanding, Informa has grown its total sales at a very impressive 11% a year over the last decade.
Cash generation
Impressive revenue growth driven by a strong competitive position is part of what makes Informa an outstanding company. But it’s also a business that generates a lot of cash.
A P/E ratio of 37 makes the stock look expensive, but this might not be the best way to value the stock. A look at the free cash the firm generates makes things look quite different.
Informa currently has a market-cap of £10.35bn and generated £812m in free cash in 2024. That implies a multiple of around 13, which isn’t particularly high at all.
The reason for this is the company has low capital requirements. It leases – rather than owns – the venues that host its events and collects fees from participants before settling its own costs.
Why’s the stock falling?
Informa’s latest report was very positive. Revenues for 2024 were up 11.4%, earnings per share rose 10.6%, and the company increased its dividend by 11.1%.
The reason the stock fell however, is the outlook for 2025 isn’t as positive. The year’s guidance is for underlying organic growth of around 5% – down from 11.6% in 2024.
Its events bring together global businesses and this means a potential trade war could have significant implications for the firm. This is a risk that looks highly relevant right now.
The company though, showed itself to be resilient when it came to the pandemic. And if it can handle that, I think it can handle most temporary things that might come its way.
I’m interested
The effects of the pandemic are still visible in Informa’s business. The company has much more debt than it had in 2018 and the number of shares outstanding is significantly higher.
As I see it though, both of these are opportunities. Even if underlying sales growth is limited, the business can boost its earnings by reducing its debt and buying back shares.
This is exactly what the firm’s planning on doing in 2025. And with the share price having dropped 8% in a day, it’s suddenly reached a level where I’m considering buying.
