According to Professor Richard Foster from Yale University, the average life of a public company today is only 15 years, down from 67 in the 1920s. So, companies that can get past the 15-year high water mark deserve extra attention from investors — clearly, they’re doing something right.
This why I believe that RWS Holdings (LSE: RWS) is one stock investors should not ignore. The firm has chalked up 13 unbroken years of profit, revenue and dividend growth since coming to the market in 2003. And it just reported yet another set of record-beating figures.
Unstoppable growth
RWS is the world leader in translation, intellectual property, life sciences and language support services. Over the past decade-and-a-half, the business has grown organically and through bolt-on acquisitions, which have helped speed up expansion.
For the year ended September 30, the firm now expects revenue to be “not less” than £163m, up 34% from last year’s £122m. Management also believes that pre-tax profit is set to come in “ahead” of market expectations as all divisions have “performed strongly” in the year.
The bulk of this growth has come from the birth of RWS’s new Life Science business, formed by the acquisition and merger of CTi (acquired in November 2015 for $70m) and LUZ Inc (bought in February for $83m).
It looks as if management expects the positive trading environment to continue into the new year. Commenting on today’s trading update, Andrew Brode, Chairman said: “Both our financial and market positions remain strong and we continue to see an interesting pipeline of acquisition opportunities to complement our organic growth.” He continued: “There is strong momentum in the business and we are, therefore, confident of further significant progress in the new financial year.”
Worth paying for?
Unfortunately, RWS’s growth story is well-known, and shares in the company command a premium valuation. Indeed, at the time of writing, the shares trade at a forward P/E of 28.6 (based on current City estimates, which may be out of date considering the above).
This valuation, while dear, is easy to justify considering the firm’s historical growth.
Over the past four years, earnings per share have expanded at a compound annual growth rate of 16.1%. If this rate of growth continues, the firm is on track to earn 25p per share by 2022 and 46.2p by 2026. If the shares continue to trade at a multiple of 28 times, this implies that the stock could be worth 1,294p within eight years, a return of 15% per annum for investors from current prices, excluding dividends.
Overall then, it looks as if shares in RWS are worth paying a premium for today. Over the past 13 years, the company has proved that it has what it takes to survive and produce returns for investors, and I believe that barring any significant slip-ups, this can continue.
As the group continues to expand, investors should be well rewarded.
