The last few years have shown us that data is like gold dust when it comes to business. Companies that know their customers, understand operations, and so many other variables can analyse and use this data to race ahead of the competition. FTSE 100 giant Experian (LSE:EXPN) is a great example of a company using data to benefit customers and businesses globally. With AI accelerating everything done in this area, I think this one definitely merits a closer look.
What it does
The company functions in two primary segments — Business-to-Business and Consumer Services. Such services include analytics, predictive tools, and advanced software platforms, focusing on areas like credit risk, fraud prevention, identity management, and customer engagement for firms of all sizes.
Additionally, Experian provides services in data analysis, research and development, and offers credit education, including free access to credit reports and scores, plus online learning resources. At a time when the cost-of-living is front of mind, aiming to improve personal financial circumstances from this data becomes a no-brainer for many.
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How’s the share price doing?
The share price has been fairly steady over the last few years. But in 2023, it’s up 9%, with the financials of the company steadily improving amid a more optimistic feeling in the stock market.
The company is by no means one of the exciting, hyper-growth tech firms we’ve seen doubling its sales at super-speed, but it has all the hallmarks of a winner over the long term. Earnings are growing at a healthy 11% a year, profit margins are rising, and debt levels are well covered by cash flows.
Fair value
With a business growing steadily and predictably, I’d expect the market to have a good understanding of what the fair value of its shares are. A discounted cash flow calculation, which estimates the fair price, suggests that the share price of £30.42 is about 7% above the fair value of £28.39. Furthermore, the price-to-earnings (P/E) ratio of the shares at 33.8 times is above the sector average of 25.5 times.
So will I buy?
A company like Experian can clearly be useful for investors looking to diversify their portfolios. Steady share price growth combined with an admittedly low dividend yield of 1.5% can provide sustainable returns, even if these aren’t spectacular when compared to more spectacular companies in the market.
I want to find companies growing steadily, but not if the share price is already above fair value. Looking at the insider transactions from the management team shows me that others may be thinking the same thing. In the last six months, over £5m worth of shares were sold by the executive management team, with none bought. This may not be related to company expectations, but it doesn’t suggest there’s tremendous confidence of further growth in the near term.
I think that the company is currently at the right price, and doesn’t present many opportunities for investors to see returns when compared to other companies. I don’t want to run the risk of investing in a company that’s already priced for perfection and that may lose me money if the financials of the firm decline over time. As a result, I’ll be putting my money to work elsewhere.
