Finding the best investments in the FTSE 100 is tough. Even the choices that look good on the surface might have an element that’s a potential drawback.
But this global analytics company, which is revolutionising industries from legal to medical research with advanced AI, could be in for a very strong future.
RELX (LSE:REL) targets organisations requiring bespoke AI data analysis and presentation, and its sales and share price have been booming as a result.
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Staggering sales growth
Over the past 10 years, the company has managed an unappetising median sales growth of around 1%. But now, it’s 9.5% as a three-year average. This has been heavily influenced by the firm’s strategic shift towards digital and AI. For example, its Lexis+AI in the legal division has attracted new customers and increased revenue.
But also, there’s a growing demand for data and analytics around the world. Management is capitalising on this very well, tailoring its solutions to specific industries to increase its profit.
RELX’s tools are so unique and advanced that it can price its products and services higher. That’s because there’s little competition providing similar technology.
RELX’s AI
The company uses multiple AI technologies, including natural language processing, machine learning and generative AI. However, what makes its network of intelligent machines really special is that each of its AI solutions is developed by experts who have deep knowledge in fields like law, science, and risk management.
The firm also has access to a lot of data, including legal cases, scientific publications, and market intelligence. I think its big selling point is that companies can embed RELX’s tools into their own workflows. This makes the data analysis, retrieval and presentation completely tailored to the unique needs of organisations.
When I choose to invest is crucial
I’m not the only one who’s picked up on the opportunity here, which I believe shows clear future growth driven by trends in AI and data analysis.
Butas a result of the enthusiasm for RELX shares, the price-to-earnings (P/E) ratio based on future earnings estimates is around 29. Over the past 10 years, a P/E ratio of around 27 has been normal for the company.
So, I might not be getting the investment at the best price. This could mean I achieve slower gains than if I choose a business that I deem undervalued but still offers strong future growth prospects.
Competition is crucial to assess
We should also bear in mind that Microsoft and Alphabet are racing to build artificial general intelligence. This could be a superintelligence, which is better than almost any human at any cognitive task.
I wonder, if ChatGPT and Gemini become superintelligent, will RELX’s AI systems be as desirable for its customers as they are now? After all, if these superintelligences have access to almost all data on the planet, the likelihood of that being more useful than localised knowledge specific to one company is quite high.
I might buy it, but not right now
Overall, I think this company could make for an excellent long-term investment. However, right now, I feel the valuation is just a tad too high. As a result, I’m waiting for a pullback in price. At that point, I might consider adding it to my portfolio.
