Reflecting back on some leading FTSE 100 companies, I wonder how they flew under my radar undetected for so long. In hindsight, it seems obvious that such businesses would rise to fame but at the time, I barely noticed.
One such company is RELX (LSE:REL).
Up 100% in five years, I’m wondering whether I missed out on this one – or has it got more tricks up its sleeve?
Two decades of transformation
RELX is a global analytics and decision tools provider that found success recently following a shift in focus to artificial intelligence (AI). The company previously operated a publishing and media business but began adopting a more data-focused strategy when the internet threatened print media in the mid-2000s.
Today, almost 45% of RELX’s profit comes from its LexisNexis Digital Identity Network.
The software is used by banks and insurance companies across 180+ countries worldwide to verify user identity. The move to analytics has helped RELX become the eighth-largest company on the FTSE 100. It’s arguably one of the UK’s most successful tech companies, investing £1.2bn annually into IT development.
Crunching the numbers
A great transformation is one thing, but that doesn’t mean RELX will deliver in the long term. Since it combines detailed content with sophisticated analytics to deliver its industry-leading service, I’m going to do the same to evaluate its worth.
Its balance sheet already flies a few red flags – £6.64bn of debt? Ouch.
With only £3.2bn worth of shareholder equity, that debt isn’t well covered – neither in the short term nor long term. (Its debt-to-equity (D/E) ratio is over 200%.)
But with £14.5bn in total assets, it more than covers its liabilities, so the money’s there if worst comes to worst.
But I don’t think that’s a concern.
From my perspective, RELX isn’t a company that’s going away any time soon. As noted above, it has a spectacular track record of overcoming adversity. And don’t just take my word for it – analysts are rooting for it too.
Forecasts predict RELX’s revenue to grow at 5.2% per year, leading to a future return on equity (ROE) of 58% in three years.
However, I’m concerned that the share price may be above fair value here. RELX has both a high price-to-earnings (P/E) ratio and price-to-book (P/B) ratio (35.25 and 1.89 respectively.)
To me, it seems like RELX is a company that’s doing well and knows it’s doing well. However, the market might be a little overconfident about how well it’s doing.
My verdict
With a share price up 37% in the past year alone, traditional logic tells me RELX is overbought. Analysts also put it at 20% overvalued. However, tech companies have a funny way of making consistent gains these days.
Notably, RELX has a low dividend yield at only 1.7%, so it has little more to offer beyond the promise of future growth.
Overall, I think RELX’s potential for growth outweighs its risk of decline. Even if it needs to go through another transformation to achieve it, I believe RELX could be the company to pull it off successfully.
I’ll keep an eye out for a good buying opportunity in February.
And this time around, I’m not going to miss the boat.
The post Up 100% in 5 years! Have I missed the boat on this skyrocketing FTSE 100 value stock? appeared first on The Motley Fool UK.
Pound coins for sale — 51 pence?
This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
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Mark Hartley has no position in any of the shares mentioned. The Motley Fool UK has recommended RELX. 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.
