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.
