I wasn’t a shareholder the first time I wrote on this growth stock in October. When I bought the shares later that month, I thought it could be a while until the share price rose.
But, since then, I’ve been pleasantly surprised to see 10% growth in my position.
The share price may go back down again in the short term, but my opinion is that there’s great value and exceptional growth rates on offer for RS Group (LSE:RS1). It’s also an investment I plan on adding to every month.
I think over the long term, these shares could be a big win for my portfolio. Here’s why.
What is RS Group?
The stock in question is a leading electrical products and solutions company.
It leads in a diverse range of products and has an efficient supply chain with worldwide distribution capabilities.
Its global presence includes operations in Europe, Asia-Pacific, the Americas, the Middle East & Africa.
What I see in the company
I was initially drawn to RS Group mainly because of its fantastic value based on my discounted cash flow analysis of the company. I estimated the ‘fair value’ of the shares, and the price when I purchased them was significantly lower.
Also, from my analysis, I was convinced that it was significantly unlikely I’d get trapped at a low price. This is partly because the company’s average annual revenue growth is around 8.5% over 10 years.
I’m still very confident about my investment in the organisation two months on. As I said, they’ve risen by 10% since I bought them. But what’s next for my investment?
Riding the wave
Warren Buffett’s famous mentor, Benjamin Graham, had a fantastic saying: “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”
I think this perfectly describes what has happened to my RS Group shares recently. While people may be voting them up right now, I think the weighing is going to come later.
The main reason I think this is we haven’t had an earnings release since I made my initial investment. So, people are investing based on past results and likely off the news.
What this means is I won’t be surprised if the shares go down in the next few months if short-term expectations aren’t met.
However, in years, I think my profits could be quite high. In fact, this is one of the stocks in my portfolio I’m most excited about.
Debt risk
I think one of the less promising aspects of RS Group at the moment is its debt level, which went up a lot around the time of the pandemic. The company had £188m of debt in 2018 but has £373m as of 2023.
This could present issues later down the line and impact both cash flow for the business and net income, which could make the company slightly less attractive in the medium term. Yet, with £260m in cash at the moment, the debt risk could be worse, in my opinion.
Doubling down
Because this one still convinces me, I’ll add to my investment over time.
This is my ideal find. It’s a growth investment and a value investment all in one. I wish every great company could be like this.
The post This growth stock has grown 10% since I bought it in October appeared first on The Motley Fool UK.
5 Shares for the Future of Energy
Investors who don’t own energy shares need to see this now.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.
While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.
Open this new report — 5 Shares for the Future of Energy — and discover:
Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
How to potentially get paid by the weather
Electric Vehicles’ secret backdoor opportunity
One dead simple stock for the new nuclear boom
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
Grab your FREE Energy recommendation now
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
Here’s how I’d invest a £20,000 Stocks and Shares ISA to target 2024 passive income of £1,820
Here’s how I’d invest £20,000 in an ISA to get passive income for life
2 electric flying car stocks to buy in 2024?
The top 20 stocks in my ISA and SIPP (with profit/loss) as we end 2023
If I’d put £10k in Scottish Mortgage shares 5 years ago, I’d have this much now
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Oliver Rodzianko has positions in Amazon, Ferrari, and Rs Group Plc. The Motley Fool UK has recommended Amazon and Rs Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
