Buying a quality FTSE 100 stock when it’s fallen on hard times can produce excellent results. Just ask investors who bought Next during the pandemic crash in early 2020 (up 240% since), or Scottish Mortgage in mid-2023 (up 145%).
By any definition, Sage (LSE:SGE) is a high-quality Footsie stock. Barring the pandemic, it has consistently put up double-digit earnings growth.
Sage was at it again in May when it reported a 16% rise in underlying earnings per share (EPS) for the six months to 31 March. Revenue was up 11% to £1.36bn and there was profit margin expansion.
Yet the stock’s down 33% since January 2025 over fears that AI might disrupt its business. But what if these fears are completely misplaced?
Nick Train, manager of Finsbury Growth & Income Trust, reckons they are. He argues there’s a “once-in-a-decade opportunity to access exceptional growth assets at fundamentally the wrong price“.
Tellingly, Train has Sage as Finsbury’s joint-third top position. So is there a once-in-a-decade opportunity to snap up Sage shares on the cheap? Let’s discuss.
Positioned to win
As a quick reminder, Sage provides software that helps small- and medium-sized businesses manage their mission-critical finance, payroll, and HR operations. As the tech firm points out, these are areas “where accuracy and compliance are non-negotiable“.
Therefore, in my opinion, it’s very unlikely customers will be leaving en masse for a general large language model or external AI agents. Especially when Sage is already embedding AI deeply into their daily workflows.
In an agentic world, AI depends on trusted systems of record like Sage to reason and act, making our role more critical, not less…We’re scaling these capabilities fast, with AI-powered features now available to over 500,000 customers across the group, helping finance teams accelerate cash flows, close the books faster, and confidently turn insight into action.
CEO Steve Hare.
In H1, underlying annualised recurring revenue rose 11% to £2.73bn, with growth across all geographic regions. Meanwhile, the renewal rate by value was 102%, which reflected “higher sales to existing customers, including the growing adoption of AI-powered features”.
What we have here then is a company that’s clearly benefitting from the launch of new AI tools and services. Not only that, but the firm’s using AI itself to improve productivity across the business.
Sage expects operating margins to trend upwards over time. And beyond AI, the UK’s Making Tax Digital is another tailwind.
Once-in-a-decade chance?
In my eyes, the biggest near-term risk here isn’t AI but economic weakness. If things deteriorate, especially in North America (Sage’s largest market by far), growth could slow quicker than expected.
On the other hand, the stock looks dirt cheap today, at just 15 times next year’s forecast earnings. That’s very low for a high-margin software firm still growing at 9%-15% a year.
On top of this, March’s share buyback programme of £300m is underway, taking the total announced in the first half to £600m. These buybacks are earnings accretive.
Finally, there’s a very well-supported forward dividend yield of 2.8%.
For the record, I bought Sage shares earlier this year. But after the strong update in May, I’m considering buying more as I believe there’s a once-in-a-decade opportunity here. I think investors could do the same.
Should you invest £5,000 in Sage Group Plc right now?
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Ben McPoland owns shares of Sage and Scottish Mortgage.
