I just bought more of this world-class FTSE 100 stock while it’s down 24%
While the FTSE 100 is currently near all-time highs, not all stocks in the index are participating in the rally. Right now, one of my favourite Footsie stocks, London Stock Exchange Group (LSE: LSEG) or âLSEGâ, is 24% off its highs.
Given the share price weakness, I snapped up some more shares in this world-class company last week. Hereâs why I think the stock is worth considering right now.
Understanding the share price weakness
Last year, shares in London Stock Exchange Group â which is now one of the worldâs leading providers of financial data â had a great run, rising about 21%. A lot of investors were excited about the software companyâs potential, especially now that itâs working with Microsoft to develop AI solutions for banks and asset managers.
This year, however, the stock has seen some profit-taking. There are a few reasons why.
One is that the AI solutions promised havenât fully materialised yet. Another is that thereâs concern AI is going to lead to automation within the financial industry, resulting in less staff at firms, and therefore fewer users London Stock Exchange can charge companies for.
Now, the first issue Iâm not too concerned about. This is just a timing issue. These AI solutions are still coming. The company just wants to make sure that theyâre accurate before theyâre launched (other AI companies could take note here).
The second issue is more of a genuine risk. And itâs something to think about. Yet my take here is that banks and asset managers are generally very slow to automate operations. So, itâs not like LSEGâs revenues are suddenly going to fall off a cliff.
Meanwhile, I think this issue is probably now priced into the stock. Looking at the earnings forecast for next year, the forward-looking price-to-earnings (P/E) ratio is only 21. Thatâs a really low earnings multiple for a financial data company with recurring revenues. Iâd expect the P/E ratio to be closer to 30.
Solid H1 results
Itâs worth pointing out that LSEGâs recent H1 results were solid. For the period, total income was up 6.4% year on year. Meanwhile, adjusted earnings per share were up 20.1%.
On the back of these results, the company hiked its dividend by 15% (signalling confidence from management). It also announced a £1bn share buyback.
“We have built a business which is strategically aligned to a number of powerful growth drivers: the long-term growth in demand for data to feed and drive the modern economy, including for AI models, the digitisation of financial markets and the increasing demands of regulatory, financial and reputational risk management.â
LSEG CEO David Schwimmer
Iâll also point out that after the results, several insiders â including the CEO â bought company shares. This signals that those within the company expect the share price to rise in the future.
My largest UK holding
Put all this together, and the risk-reward set-up here is attractive, in my view. Iâve made the stock my largest UK holding, and I believe itâs worth a look today.
The post I just bought more of this world-class FTSE 100 stock while itâs down 24% appeared first on The Motley Fool UK.
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Edward Sheldon has positions in London Stock Exchange Group and Microsoft. The Motley Fool UK has recommended Microsoft. 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.
