The FTSE 100 is the crown jewel of the London Stock Exchange – home to 100 of the UK’s largest public companies and is not usually known for its growth stocks.
But despite the Footsie’s reputation for mature, slow-growing companies, the index boasts plenty of firms that double or triple in value in short spaces of time.
One stock – analytics company Relx (LSE: REL) – doubled in the last three years, not even taking into account its decent dividend payment.
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And a recent shift into artificial intelligence might mean it won’t take too long to double again.
What does Relx do?
Relx has its finger in a lot pies, but a sizeable amount of revenues come from data analytics.
Its £2bn Legal segment helps lawyers make sense of tomes of legal data quickly and easily. It’s not hard to see why customers value this service.
Likewise, it’s easy to see how much an effective AI application could help here.
Its latest offering, Lexis+ AI, has already been released. Lexis+ AI is an “AI Legal Assistant” that promises “hallucination-free” synthesis of legal documents and other data.
Rolling this out along with Scopus AI (for academic documents) and Clinical Key AI (for medical documents) could trigger the share price going on another tear.
Overseeing this process is CEO Erik Engstrom. He’s been in charge for 15 years already and created £50bn in market value for the company.
A success
He’s helped Relx outperform the rest of the FTSE 100 for 12 out of the last 13 years too.
A recent Financial Times piece called him an “unflashy Swede” and noted how he eschews private jets, catches the tube to work, and likes to eat at Itsu.
These are small details but I’m happy to hear the top brass sound grounded and I don’t think it’s a coincidence he’s been such a success already.
In fact, one of the bigger risks might be if he decides to call it a day sometime soon.
Now, as much as I like what I’ve covered so far, we have the thorny issue of the valuation to deal with. In short, the shares aren’t cheap.
Relx trades at seven times sales (Footsie average: 2), 26 times free cash flow (Footsie average: 15), and 36 times earnings (Footsie average: 11).
Using a PEG (price-to-earnings growth) ratio to assess whether earnings growth justifies the priciness – where below one is considered reasonable – the stock comes in at a dizzying 3.51.
The shares look a little less expensive when compared to the US where it has a dual listing – S&P 500 stocks trade at 28 times earnings on average.
Another reason is that the share price – up 43% over the last year – has been dragged upwards by the AI hype-train.
My move
All things considered, the Relx share price has potential to double again but also to deflate. I’ll be looking to pick up the shares if it gets any cheaper.
