1 under-the-radar growth stock to buy in September

James J. McCombie — Mon, 12 Sep 2022 14:39:00 +0000

International online research data and analytics company YouGov (LSE: YOU) certainly looks like a growth stock. It has grown its revenues by 13.9% on average over the last five years. Its earnings per share increased 26.3% per year on average since 2017. Furthermore, since its stock market listing in 2005, the share price is up about 3,200%.

I can convince myself that YouGov is a growth stock. But why do I believe it’s also flying under investors’ radars?

A cheap growth stock?

The most significant indication that YouGov might be an under-the-radar growth stock is the stock’s price-to-earnings growth ratio (PEG). The PEG is beloved by investors who like growth but want to pay a reasonable price. Anything less than one is great and suggests the stock is undervalued given its growth prospects. I calculate that YouGov stock has a PEG of 0.4.

A growth stock with a PEG that low is something I want to be adding to my portfolio this September, so long as I am confident that YouGov can continue to increase its revenues and earnings.

Trusted opinion

Gathering people’s opinions and transforming them into useful output used to take days, perhaps weeks, to complete. YouGov pioneered online polling. It can pose questions to some 17m panel members (up from about 5m in 2017) in 43 countries to provide real-time marketing and opinion data for paying customers and public distribution.

YouGov does seem to have a potent, growth stock-type business model. But what it does is easy to replicate, at least in principle — set up a digital platform, take to social media, and offer to pay people (about £3 per hour at UK rates) to answer questions. The tricky part is building the skills and techniques to transform that data into actionable output.

More importantly, a company like this needs to establish trust and credibility to motivate someone to pay for its insights. That takes time, talent, and high-profile wins. YouGov has got election outcomes right when others were wrong, and it plumped for Will Young to win 2002’s Pop Idol when all the pundits backed Gareth Gates.

A growth stock paying dividends

YouGov’s 2021 revenues of £169m is a drop in the ocean of a market measured in the tens of billions. It has room to grow. But of course, it has competition. A string of unsuccessful predictions could make YouGov’s reputation, and market share, take a hit. That risk is perhaps heightened now as the company is rolling out new features designed to gather more data more cheaply from its users, like linking Netflix browsing histories. That might be off-putting. And given it’s a new data source, the company might make a mess of interpreting it.

And then there is the fact that the YouGov share price has fallen. Growth stocks have found themselves out of favour over in 2022. YouGov has not bucked this trend in underperforming the FTSE All-Share by 30% in the year to date. I cannot be certain that the downtrend is over.

However, on balance, I think YouGov’s prospects are good and buying it for my portfolio this September is worth the risks. Plus, YouGov has another boon to offer as it pays a dividend, meaning I don’t have to make the choice between a growth or an income stock.

The post 1 under-the-radar growth stock to buy in September appeared first on The Twelfth Magpie.

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James McCombie has positions in YouGov. 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.

Down 70%, I’m buying this growth stock in a heartbeat

Stuart Blair — Tue, 12 Apr 2022 06:04:00 +0000

The rout among growth stocks during the past year can be seen by a look at the Nasdaq index. In fact, over the past five years, the Nasdaq has risen over 128%. But year-to-date, it has fallen around 15%. This bear market has been caused due to the rapid rise of inflation, and recent interest rate rises. But as a long-term investor, I see a lot of potential in several beaten-down growth stocks. This US fintech stock is a prime example.

What is the company?

SoFi Technologies (NASDAQ: SOFI) went public via a SPAC at the end of 2020. Its start as a public company was very strong. In fact, the stock reached highs of nearly $25 in November last year, which was over double its original price. Despite this, the growth stock has now fallen back to below $8, its lowest ever price. This is a 70% decline.

But SoFi has been performing very well. Indeed, in 2021, the company managed to report adjusted net revenues of over $1bn, a 62% rise year-on-year. Further, the company’s members reached nearly 3.5m, an 87% year-on-year rise. This demonstrates that the fintech is growing at incredible rates, and this may be due to its strong business model, which incorporates several different services, including investing and personal loans.

In the same year, SoFi also acquired a bank charter meaning that it will be able to directly lend to customers. This is expected to boost profitability.

Why has SoFi stock fallen?

Considering its many positives, it may seem odd that SoFi stock has fallen back so heavily. But alongside the general sell-off in growth stocks, SoFi has faced several individual headwinds.

Firstly, President Biden has continued to extend the student loan payment moratorium, most recently until 31 August of this year. SoFi also expects this will be extended beyond August. This will affect SoFi due to its student loan refinancing business, which has operated at less than 50% of pre-Covid levels for the past two years. As such, the fintech has lowered revenue guidance for 2022 by $100m to $1.47bn. Adjusted EBITDA guidance has also been lowered to $100m, from previous estimates of $100m. Despite this, both these figures still represent stellar growth from 2021. Further, the moratorium is only a short-term problem, and as a long-term investor, I am not overly worried.

SoFi has traded at extremely high valuations, including a forward price-to-sales ratio of around 20 last November. However, at its current valuation it only has a P/S ratio of under 5, far lower than many other growth stocks. Therefore, I no longer view SoFi stock as overvalued.

Why is this growth stock a no-brainer buy?

I am cautious about buying growth stocks now, due to inflationary issues. But the presence of its lending business, means that SoFi should be able to offset some of these inflationary pressures, as it can lend at higher rates. Further, as evidenced by member growth, it’s a real disruptor in the fintech space. As such, I feel that this dip offers a great time to buy, and I may add more to my portfolio in the next few weeks.

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