Over the last few months, many UK stocks have been hammered. AIM-listed law firm Keystone Law (LSE: KEYS) – which I own in my own portfolio – is a good example. Its share price has been cut in half on the back of recession fears.
Looking at recent news from Keystone Law, I think the decline in the share price is a little excessive. So, I plan to buy more of the stock in the near future. Here’s why I’m bullish.
Keystone Law just raised its dividend by 16%
Keystone’s recent half-year results, for the six months to the end of July, were pretty solid, in my view.
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Revenue was up 9.3% year on year to £36.8m. Meanwhile, adjusted basic earnings per share were basically flat on the same period last year (11.8p versus 11.9p last year). I think that’s a good result given that a) costs have soared this year, and b) last year’s profits were boosted by a lack of networking events.
It gets better though. For the period, Keystone Law declared an interim dividend of 5.2p per share. That represents a 16% increase on the dividend paid a year earlier. This suggests to me that management remains very confident about the future.
The company also said that client demand has remained strong, and that it expects full-year results to be comfortably in line with market expectations.
Overall, the H1 results were encouraging.
Insiders have been loading up on this UK stock
The recent results aren’t the only reason I’m bullish on Keystone Law, however. What’s really grabbed my attention is the fact that insiders have been snapping up shares.
Regulatory filings show that on 27 September, Keystone’s founder and CEO James Knight bought 111,110 shares in the company at a price of 450p per share. This trade cost the insider around £500k.
On the same day, non-executive director Simon Philips also bought 20,000 shares at a price of 457p. This trade cost him approximately £91k.
I think this director dealing activity is very interesting. As both founder and CEO, Knight is likely to have an excellent understanding of the company and its prospects. Philips is also likely to have a good understanding of the stock’s potential as he’s the CEO of private equity firm ScaleUp Capital.
Attractive valuation and yield
After the recent share price fall, Keystone Law shares now have a very reasonable valuation. At present, the forward-looking P/E ratio here is around 20. Given that the company has grown its sales by around 170% over the last five years, I see that valuation as attractive.
I also like the yield on offer. Keystone is projected to pay out 15.9p per share in dividends this year, which equates to a yield of around 3.5% at the current share price.
I’m going to buy more shares
Of course, there are risks to consider. If economic conditions here in the UK continue to deteriorate, Keystone’s revenues and profits could fall. That’s because there’s a positive correlation between economic activity and demand for lawyers.
However, with the stock down massively in 2022, I would have thought a lot of this risk is already priced in.
Accordingly, I’m going to be buying more shares for my portfolio in the near future.
