Looking at the YouGov (LSE:YOU) share price performance in recent times, it seems difficult to justify my belief that the data and analytics technology group is a growth stock. Since April 2020, the value of the company’s shares has fallen 51%. Much of the damage occurred in June 2024, when it issued a profit warning.
Then and now
However, from a financial and operational perspective, the company’s unrecognisable from when it floated in April 2005.
During the year ended 31 July 2005 (FY05), it reported turnover of £2.9m and an operating profit of £961,000. In FY24, revenue was £335m and the company disclosed an adjusted operating profit of £49.6m. Since IPO, earnings per share has increased from 5.8p to 29.4p.
Using these figures, it does appear to meet the definition of a growth stock.
But the group’s recent troubles have dented investor sentiment. The stock now trades on 10 times its historic earnings. This is roughly half of where it has been over the past three years or so. This seems cheap to me and could be a good opportunity for investors to benefit from a stock that has much to gain from the emergence of artificial intelligence (AI) solutions.
The fourth industrial revolution
In 2024, the global AI market was estimated to be worth $279bn. By 2030, it’s expected to grow to $1.8trn.
YouGov already employs AI in a number of its offerings. Those who closely followed the UK general election last year will have heard of the multi-level regression with post-stratification (MRP) opinion polls produced by the company.
But politics is a small part of what the group does. The fact that 3.7bn people were entitled to vote in national elections in 2024 didn’t materially affect the company’s performance.
In fact, the group has three divisions – Data Products (a subscription-based model), Research (client-specific projects), and Consumer Panel Services (household purchasing data available in 18 European countries).
And all of them provide the data that many AI applications require to be effective.
Encouragingly, these services can generate very high margins. The same set of data can be sold to thousands of clients at very little additional cost.
Possible challenges
But there are risks. With a market cap of £350m, the company’s still relatively small. Its shares are traded on the Alternative Investment Market (AIM) where liquidity can be poor. A number of companies have recently announced plans to de-list, claiming their AIM valuations don’t reflect the true value of their businesses.
And although President Trump’s tariffs don’t affect the company directly, should there be a wider economic downturn, spending on data is one of the first things that companies might cut.
Indeed, the company’s cautious about its immediate prospects. It’s predicting “modest revenue growth” for FY25. And it says “trading conditions remain challenging reflecting the current macro-economic backdrop”.
I’m not expecting an immediate rebound in the YouGov share price. It often takes time to rebuild confidence after a profit warning. But it’s operating in a sector that should grow over the longer term. Therefore, I think it could be an excellent stock for those investors who like to look beyond short-term price volatility.
This post was originally published on Motley Fool
