FTSE 250 incumbent Euromoney Institutional Investor (LSE:ERM) has seen its shares rally after a recent stock market correction. Should I add the shares to my portfolio?
B2B information services
Euromoney is a global business-to-business information services company. It sells subscriptions to businesses to provide tailored data, research, analysis, and intelligence to help them perform in their respective industry.
So what’s been happening with the Euromoney share price recently? Well, as I write, the shares are trading for 942p. At this time last year, the shares were trading for 956p, which is a 1.5% drop over a 12-month period. On 8 March, ERM shares dropped to 829p due to a stock market correction but rallied 20% to reach 995p by 1 April. It is worth noting many FTSE 250 stocks saw share prices drop due to this correction.
For and against buying shares
FOR: Reviewing Euromoney’s performance, I can see revenue grew between 2018 and 2019. Revenue fell in 2020 due to the pandemic but grew for 2021 once more. I do understand past performance is not a guarantee of the future, however. Coming up to date, a half-year report released at the end of last month was positive, in my opinion. The firm reported revenue growth due to post-pandemic recovery and a rise in subscription numbers. It also said it had decided to review its property requirements with its 2,500-strong workforce now working from home. This could lead to considerable savings.
AGAINST: Euromoney shares seem to be trading at a premium and don’t look like good value for money to me. The shares are currently on a price-to-earnings ratio of close to 80! The average P/E ratio for firms in the same sector is closer to the 40 mark. This tells me Euromoney shares are twice as expensive as the general market.
FOR: Euromoney does pay a dividend, which would help me build a passive income stream if I decided to add the shares to my holdings. I am a passive income seeker but I do understand that dividends can be cancelled at any time. Recent performance leads me to believe ERM’s dividend is sustainable. Crunching the numbers, its dividend yield stands just less than 2%. This is in line with the FTSE 250 average yield.
AGAINST: Euromoney’s growth is underpinned by extensively acquiring businesses in its industry to increase its portfolio of products and enhance its offering. I am buoyed when a business is able to do this. However, there is always a big risk that acquisitions fail to pay off. One of the common issues that a company can suffer from is overpaying for a business, which can affect the bottom line and shareholder returns. Another issue is a lack of synergy and difficulty integrating the new business into the parent company.
A FTSE 250 stock I would avoid
Reviewing the investment case, I would not buy Euromoney shares right now for my holdings. I like the fact it pays a dividend to help build a passive income stream and performance seems consistent too. My biggest issue is its current valuation. If the shares were to drop substantially, I would consider adding them to my holdings.
