When I’m looking for shares to buy, I like it when I see a good recovery candidate.
It doesn’t mean I always buy them, mind. And I should probably kick myself for not snapping up some Rolls-Royce Holdings shares when they were super cheap.
But I’m looking at the falls in the AIM-listed YouGov (LSE: YOU) share price of the past few years. The good start to 2024 has faded, and the price is down 30% since a peak in February.
Bubble burst
Looking back a bit further, YouGov shares peaked at around 1,600p in late 2021. And I really had no idea why.
Profits were growing strongly, but nowhere near enough to justify a price-to-earnings (P/E) ratio of over 70. Not to my mind, at least.
But then, markets often get over-excited at the prospects of a growth stock. And investors often scour the Alternative Investment Market (AIM) to find the best ones.
Now the bubble seems to have deflated, are we in for a second wind? When they happen, they can often be more sustainable.
Growth forecasts
Forecasts show earnings per share (EPS) growing 75% by 2026, from 2023’s figure. And they have free cash flow up more than 80% in the same time.
It would put the P/E up over 30 for the current year, which still seems a bit high. But if it drops to the predicted 15 or so by 2026, I think this might just be a bargain buy. That’s a long way ahead, though.
YouGov strikes me as a risky one. And there’s one aspect that’s pulling me in two directions. I’m talking of the use of artificial intelligence (AI)
AI boost
YouGov’s market research business looks like one that really could benefit from AI.
I’m careful not to expect too much from the technology. But one thing I think it’s good at is collating and summarising statistical data.
The other side, though, is that AI is also a bit of a buzzword today. I’ve seen investors jump on stocks at the merest suggestion of it, and I’ve seen booms and busts as a result. Maybe 2022 was the AI boom for YouGov, and perhaps the thing I couldn’t fathom at the time?
But I really do think there might be a bit too much AI bullishness in the share price right now, and it could fade.
Time to buy?
At interim results time in March, CEO Steve Hatch spoke of “the accelerated sales momentum seen in the second quarter, and our robust sales pipeline.” And he reckons it means that “YouGov can achieve growth for the full year in line with current market expectations.”
So that’s a nod to those strong forecasts.
Will I buy? Probably not. But that’s just because AIM growth stocks don’t appeal to my strategy, which is based on long-term high-yield dividend stocks.
But I do suspect I might be missing out. Maybe I’ll end up wanting to kick myself again.
The post Does a 30% price drop make YouGov one of the best AIM shares to buy now? appeared first on The Motley Fool UK.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Rolls-Royce Plc and YouGov 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.
