The share price of fast-growing digital advertising firm S4 Capital (LSE: SFOR) has experienced a stunning collapse recently. Back in September, S4 shares were trading above 850p. Today, however, they’re below 300p after the company delayed the publication of its 2021 results (twice) due to auditor issues.
S4 is a UK stock I’ve had my eye on for a while now. I’ve always been impressed by the growth story. Has the recent share price fall provided a great buying opportunity for me? Let’s take a look.
Three reasons to buy S4 Capital shares today
There are a number of things to like about S4 right now, to my mind.
For starters, there’s the high level of growth the company is generating. Between 2018 and 2020, revenue jumped from £55m to £343m. That represents a compound annual growth rate (CAGR) of about 150%. There are not many companies on the London Stock Exchange generating that kind of growth.
We obviously don’t have a top-line figure for 2021 yet as the company hasn’t published its results. However, in January, S4 said that last year it saw “very strong” like-for-like revenue and gross profit growth that was well ahead of the previous company guidance of 40%. That’s encouraging.
Secondly, the company has a top leader in Martin Sorrell. Previously, Sorrell built FTSE 100 firm WPP into a global advertising behemoth. He appears to be doing the same thing here.
Third, the company’s valuation now seems pretty reasonable. When I’ve looked at S4 shares in the past, I’ve often thought they were quite expensive. However, that’s not the case today. With analysts expecting earnings of 17.7p per share for 2022, the forward-looking P/E ratio is just 17. That strikes me as low relative to the growth being generated.
High level of uncertainty
Having said all that, the fact that the 2021 results have been delayed twice now due to auditor issues does add quite a bit of uncertainty here.
Originally, the results were meant to be published on 18 March. Then, the company said they’d be posted on 31 March. It’s now 19 April and we still don’t have them.
This is a bit of a concern, in my view. And clearly, some investors see it as a red flag. The significant delay here could be a sign that the auditors have seen something they don’t like.
It’s worth pointing out that at this stage, there’s absolutely no evidence that something is wrong here. However, the situation is certainly a bit strange.
Should I buy S4 Capital shares today?
Given the uncertainty here, I’m inclined to wait until the results have been published before making a decision as to whether the stock is worth buying for my portfolio, in order to ensure there are no ‘nasties’ here.
This could mean I miss out on gains of 10%, 20% or more if there are no problems with the 2021 results, and the stock rockets higher immediately after the results are published.
However, it could also protect me in the event that there’s some bad news and the stock craters. If the auditors have identified a problem here, I’d expect the share price to tank.
For me, it’s all about balancing risk versus reward.