While the overall market picture may have been mixed in recent weeks, some shares are on fire. One of them is a UK growth share that has almost doubled in the past year, adding 93% to its price. Its share price hit a new all-time high in yesterday’s trading session. But I would still consider buying more of it today. Here’s why.
Strong growth ambition
The company in question is digital marketing network S4 Capital (LSE: SFOR), which owns agencies such as MediaMonks and MightyHive. The London-based group has been able to build up a roster of clients in the US, while expanding its global reach through a series of acquisitions. Last week, for example, it announced that it is combining with Australian-based agency Destined.
S4 Capital is a digital-only agency involved in the production and placement of marketing. That is a growing business as ad spending continues to move online from traditional channels such as print and TV. But the company’s growth surpasses that of the digital marketing space overall. That reflects its sharp focus, experienced management and ambitious growth plans. It is targeting 30% organic revenue and profit growth this year. That is before adding growth from acquisitions.
Is S4 Capital a UK growth share to buy?
The market has noticed the strong growth story at S4, which helps explain why its share price has performed so well. Still, I continue to see it as a growth share to buy. Here are three reasons why.
First, the company’s talent pool is strong. Founder Sir Martin Sorrell built up WPP and he has been using a similar playbook at S4. But there is a lot more talent in this company of almost 6,000 staff than just Sir Martin. That bodes well for S4’s ability to win, service and retain client accounts.
Secondly, the digital focus means that unlike some traditional advertising agency holding groups, S4 Capital is focused squarely on high-growth-potential areas. Not only can that help revenue growth, it should also allow the company to choose profitable areas in which to work.
Thirdly, the company can continue growing through acquisitions. It announced last month that it has tapped the debt markets to increase its financial firepower. That should help fund mergers that can boost organic growth rates.
UK growth share risks
Moving fast can always accelerate success – but it also risks exacerbating mistakes.
One risk with S4 Capital is that its breakneck increase in size could lead to inconsistent output quality. If that happens, it could hurt revenues. The company is also heavily exposed to the tech sector. While I think its client list of tech giants is a sign of S4 Capital’s professional appeal, it also means that any downturn in the tech sector could hurt S4 Capital revenues.
Overall, I see S4 Capital as one of the growth shares to buy more of today for my portfolio. Since I picked it last December as my top share for 2021, it has added 37%. Even as the S4 Capital share price continues to move to new territory, I remain bullish.
