When the stock market crashes like it did in March, I tend to double-down on my research before buying a share. The question I ask is: if I could only buy one company for the rest of my life, what do I consider to be the best UK share?
The qualities that this ‘best UK share’ should possess will probably depend on your stage in life, risk tolerance and investing style. But I look for a share that is resilient in a market downturn and offers long-term revenue growth in an expanding sector of the market.
A contender for the best UK share crown?
Mathematician Clive Humby is credited with coining the phrase ‘data is the new oil’ in 2006. Perhaps a good illustration of this can be found by expanding the Experian (LSE: EXPN) share chart to a 10-year view. The shares rarely come cheaply, and a dip like the one seen in March is exceptional.
Readers will probably know Experian for its credit checking service. But Experian is a big data company providing decision analytics and marketing solutions to both businesses and individuals. Revenues have been ticking upwards for several years growing to $5,179m at the end of 2019.
It has a dominant UK market position and is one of the big three credit agencies globally. The sheer size and volume of data means that this is not a market that competitors can easily enter, creating an economic moat for Experian. Add a well-covered, but modest, dividend of 1.3% to the mix and there’s a lot to suggest Experian is one of the best UK shares.
How is Experian trading this year?
In a second-quarter update, it announced that underlying revenues declined 2%. UK & Ireland revenues fell 15% as tighter credit and lending policies and the collapse of the car sales market hit its core credit division. However, growth in North America and Brazil offset this fall.
The credit division is inherently cyclical with downturns in the economy squeezing credit and lending. But big data to drive decisions is in huge demand and Experian is a key player.
The coronavirus pandemic has changed the way we live. More people are now working from home. It has advanced the transition to online shopping. It has changed the way we spend our money. But these changes require huge data analysis. That should keep the tills ringing for Experian for many years to come.
As data is used by more and more industries to make decisions, the opportunities for Experian continue to expand. This is illustrated by the success of its Latin America market that accounted for 16% of profits last year.
Experian ticks a lot of the boxes but is it the best UK share right now? For me, it is a bit too expensive to hold that title. A P/E (price to earnings) ratio of 34 gives little margin for error if an earnings targets is missed. It also already prices in a lot of future growth.
I already own shares in Experian. But I’ll be waiting for another rare market pullback before investing any more money.