Shares of FTSE 250 growth stock Alpha Group International (LSE:ALPH) have been on a rampage over the last five years. The UK fintech enterprise has grown its market capitalisation by over 250%. And even in 2024, this momentum has continued with the shares up by another 46% since the start of 2024.
Having first invested in this enterprise back in early 2020, my portfolio has massively benefitted from its rise. In fact, it’s grown to be among my second-largest holdings. But what’s been driving this growth? And can it continue moving forward?
Understanding the business
Alpha Group is a bit of a complicated business. But in simplified terms, the company provides a collection of four primary financial services: foreign exchange risk management, alternative banking, fund financing, and bank connectivity solutions.
The oldest and largest remains its currency-risk-management services. However, the other solutions have been rapidly growing over the years and are steadily contributing a significant amount of revenue and profits. And with so much volatility in the financial markets these past years, Alpha has had little trouble capitalising on rising demand.
A lot of its services have traditionally been handled by corporate banks. However, these institutions are notoriously expensive. Alpha has proved itself far more affordable for small and large businesses alike while simultaneously providing better experiences through technological innovation and efficiency.
With revenue generated primarily through fees and subscriptions, the company has become a cash-generating machine. As a result, the balance sheet is entirely debt-free, with all expansion funded internally, culminating in Alpha becoming the latest constituent of the FTSE 250 earlier this year.
Can it keep up the pace?
Its latest trading update said sales and profits continue to grow at a double-digit pace across the board. This momentum is being driven by a rising number of clients and customer accounts, as well as higher cross-selling driving increased activity across its platforms.
Yet despite this stellar performance, shares continue to trade at a price-to-earnings ratio of just 12.7. In my opinion, that looks far too cheap, given the quality and growth rate of the underlying business. And it seems management agrees since it’s been steadily buying back £20m worth of shares, with another £20m under way.
What’s more, with interest rate cuts eventually on their way, management is predicting a significant uptick in trading activity from customers. That means more transaction fees, new opportunities to upsell, and lower customer acquisition costs, all sparking higher growth.
Of course, no business is perfect, and investing in Alpha still carries risks. We’ve all recently seen the damage IT outages can cause following the CrowdStrike disaster. And while Alpha’s technology is fundamentally different, disruptions to the functionality of the platform could significantly and adversely impact relations with customers, especially if the source of disruption is a security breach.
It’s also necessary to point out that currency risk management isn’t easy. It requires specialist knowledge to execute correctly since, just like investing in the stock market, bad decisions can lead to expensive mistakes. If Alpha can’t retain its team of experts, the value proposition for customers could be easily compromised.
Nevertheless, with more growth seemingly on the horizon and prudent leadership at the helm, this growth stock looks like a tempting purchase today.
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Zaven Boyrazian has positions in Alpha Group International. The Motley Fool UK has recommended Alpha Group International. 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.
