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When I look for stocks to buy, I like to see a good recovery candidate.
That doesn't mean I always buy them, of course. And I should probably punish myself for not buying something. Rolls-Royce Holdings stocks when they were super cheap.
But I'm looking at the drops on the AIM list YouGov (LSE: YOU) share price over the last few years. The good start to 2024 has faded and the price is down 30% from its peak in February.
Burst of bubbles
Looking back a little further, YouGov shares peaked at around 1,600p at the end of 2021. And I really had no idea why.
Earnings were growing strongly, but not enough to justify a price-to-earnings (P/E) ratio of over 70. At least not in my opinion.
But then, markets often get overly excited about the prospects of a growth stock. And investors often scour the Alternative Investment Market (AIM) to find the best ones.
Now that the bubble seems to have deflated, is a second wind awaiting us? When they happen, they can often be more sustainable.
Growth forecasts
Forecasts show that earnings per share (EPS) will grow 75% by 2026, compared to the 2023 figure. And at the same time, its free cash flow increased more than 80%.
This would raise the P/E to over 30 for the current year, which still seems a bit high. But if it falls to the roughly 15 projected for 2026, I think it could be a bargain buy. However, there is still a long way to go.
YouGov seems risky to me. And there is an aspect that pulls me in two directions. I am referring to the use of artificial intelligence (ai)
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YouGov's market research business looks like one that could really benefit from ai.
I'm careful not to expect too much from technology. But one thing I think he is good at is collating and summarizing statistical data.
The flip side, however, is that ai is also a buzzword today. I've seen investors jump into buying stocks at the slightest suggestion, and I've seen booms and busts as a result. Perhaps 2022 was the rise of ai for YouGov, and perhaps what I couldn't imagine at the time?
But I really think there could be too much ai optimism in the stock price right now, and it could fade.
Is it time to buy?
At the time of interim results in March, chief executive Steve Hatch spoke of “the accelerated sales momentum seen in the second quarter and our strong sales pipeline.” And he considers that it means that “YouGov can achieve full-year growth in line with current market expectations.”
So that's a nod to those strong forecasts.
I'll buy? Probably not. But that's simply because AIM growth stocks don't appeal to my strategy, which is based on long-term high-yield dividend stocks.
But I suspect I might be missing something. Maybe I'll end up wanting to kick myself again.
