Whenever the market declines, it can be a good idea to to buy stocks representing quality businesses.
For example, Experian (LSE: EXPN) scores well against quality indicators. And it has a multi-year record of generally rising revenue, earnings, and cash flow.
A Nick Train favourite
The FTSE 100 company trades as a global information services provider. And it’s one of the favourites of well-known successful fund manager Nick Train.
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For example, the stock is one of the top 10 holdings in Finsbury Growth and Income Trust, which he manages. And he also has a large personal shareholding in the trust.
Train aims to buy and hold stocks for the long term. And one of his main requirements is that a business has the potential to compound a growing stream of earnings year after year.
Meanwhile, Experian’s normalised earnings are running at a compound annual growth rate (CAGR) of just under 9%. And shareholder dividends have been compounding at just under 6%.
The balance sheet is strong and the record for operating cash flow shows a CAGR of just over 6%.
There’s a lot to like about the business, its trading history, and the financial record. And City analysts predict high single-digit percentage advances for earnings and the dividend in the year to March 2024.
And those estimates are supported by a robust outlook statement delivered in January with the third-quarter trading update.
Chief executive Brian Cassin said back then, the business performed well in the three months to 31 December 2022. And the outcomes were in line with the directors’ expectations.
Ongoing steady growth in the business
Cassin pointed to new products, new business wins, and consumer expansion as reasons for the success.
Pressures in the global economy look likely to continue for some time. But Cassin thinks the business will remain resilient. And that’s because of the firm’s growth strategy and its increasing countercyclical revenue streams.
We’ll find out more about recent trading with the full-year results report due on 16 May.
Meanwhile, the stock looks like it’s been dragged down in the latest bout of general stock market weakness. With the share price at 2,641p, its around 12% lower than it was a month ago. And to put that move in perspective, it’s just over 10% down over the past year.
But there’s no obvious evidence of immediate problems in the underlying business. So the current price weakness may be an opportunity to make a better-value purchase of the shares.
However, even now the valuation looks quite full. And that situation may add some risks for shareholders. After all, even quality businesses with strong finances and a decent trading record can run into operational problems from time to time. And if the business goes ex-growth in the future, the valuation could rate lower.
Right now, the forward-looking earnings multiple is just below a lofty 22 for the trading year to March 2024. Nevertheless, investors may wish to dig in with deeper research now with a view to making the stock a long-term hold in a diversified portfolio.
