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After a tough time in 2022, this year has definitely been a winning year for investors focusing on growth stocks. Many of the world's largest companies have seen their shares rise more than 50%, and cash has returned to the stock market after a period of uncertainty and fear. financial technology company Kaspi.kz (LSE:KSPI) has seen its shares rise 38% in 2023. But could there be more growth to come?
The business
Admittedly, this is not a household name. However, Kaspi.kz is an extremely versatile company that offers a variety of payments, marketplaces and fintech services primarily through its mobile app. In addition to the usual services expected from a banking app, users can book flights, rent cars, and place food orders. The market, which primarily serves the digital services sector in Kazakhstan, is small but growing steadily.
Why would an investor be interested?
Growth stocks are all about potential. With a sleek platform that allows users to do so many things in one place, this could easily catch on. Given the success of similar applications in China, Western countries have tried to develop a similar platform. A notable example is Elon Musk's wholesale changes to X.
Earnings growth of 22% per year is fairly close to the industry average, but the company operates at an extremely high level of efficiency. Return on equity is an impressive 78%, eclipsing the industry average of 14%. If the company can continue to grow and at the same time be as efficient, the future could be bright.
Also worth noting is the very generous dividend yield of 7.9%. This payout is well supported by earnings and is expected to continue growing in the coming years. Of course, dividends are never certain and can be cut or canceled at any time.
Risks
Obviously, the market is quite small, given the country's population of just over 19 million. And given the tense geopolitical situation, there is a risk that companies in certain areas will face supply chain constraints.
Another factor is the scale of internal ownership. A whopping 48% belong to the executive team. This can be seen in two ways: those at the top benefit greatly from strong performance, but it also potentially reduces the level of transparency towards other shareholders.
However, with shares valued at $178.61, there could be 47% more room to grow from the current price, based on a discounted cash flow calculation. Of course, this is not a guarantee, but investors could see their patience rewarded.
I am buying?
I think Kaspi.kz has a really interesting future ahead of it. It is evident that it is a very effective platform, widely used and liked by an increasing number of users. Many larger apps could only dream of success, such as their 65% daily engagement rates. If such an efficient and popular platform can be brought to new markets or adopted by a larger company, there could be huge potential here. I am adding it to my watch list and will purchase this growth stock at the next opportunity.
