Up 33% in a year! I believe this FTSE 100 stock will keep chugging higher
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When putting money into the FTSE 100, it's important to choose wisely. I aim to invest in companies that are experiencing significant growth, offering high returns, and have a steady track record.
Leveraging Credit Scores
Experian, a top company in providing information services, is one of the three major credit reporting agencies in the world. The other two are Equifax and TransUnion.
From 2007 onwards, Experian has shown impressive growth, ranking as the second best performer among the top three companies in terms of pricing. Additionally, as depicted in the chart below, the company has significantly surpassed the overall index to which it belongs.
This demonstrates the profitable opportunities that come from selecting specific companies to invest in. However, rapid growth also means there is a high risk of unpredictable market fluctuations. Therefore, it is important for me to invest in these companies at a fair price.
Great Value For Your Money
Experian's valuation has increased compared to the past, but this is justified by its improved growth rates.
The stocks have a P/E ratio of 35.5, which is greater than its average of 31 over the past decade.
Nevertheless, its earnings per share, not including one-time items, are projected to increase by 10.2% each year for the next three years. This rate of growth is significantly greater than the 8.7% annual earnings per share growth rate that the company has averaged over the last decade.
In my opinion, the stock market has acknowledged Experian's worth, even though its P/E ratio is high. This is beneficial because it indicates that there is less risk involved compared to if the company was overpriced. This is because the price is less likely to decrease solely due to changes in investor confidence.
Is AI Ready To Take Over?
Even though Experian relies on AI to improve their traditional credit scoring methods, they face a rising and possibly underestimated competition from new fintech companies.
Rival companies focusing on AI may develop custom solutions that are more precise and cost-effective. This potential danger is minimal for now due to AI being relatively new. However, as developers grow more comfortable with intelligent technologies, I believe there is a great chance for emerging businesses to gain a larger share of the market.
Thankfully, Experian has a well-known and respected brand. So it would be smart for management to keep leveraging this advantage, especially with new technological competitors emerging.
Top 3 Investments?
Despite Equifax experiencing a larger increase in price compared to Experian since 2007, I currently have a more positive outlook on the latter due to its valuation. Equifax currently has a P/E ratio of over 65, which I consider to be too high. Additionally, its 10-year average P/E ratio is 33.7.
Even though Equifax is expected to have a significant increase in earnings per share of 21.9% over the next three years, I personally prefer a company with a lower valuation. Comparatively, Experian is only expected to have a 10.2% increase in earnings per share.
I am thinking about purchasing Experian shares in the near future. If I had put £5,000 into the shares a year ago, I would now have nearly £6,650. And that doesn't even include the 1.25% dividend yield. I'm disappointed that I didn't take advantage of that increase, but I am hopeful that I won't miss out on any potential future gains.
