Identifying the perfect growth stock is a tough task. I believe FRP Advisory (LSE:FRP) could be one such stock, however. Here’s why I would add the shares to my holdings.
Advice for businesses
As a quick introduction, FRP is a professional services firm that provides its services to other companies. These services include advice around debt, corporate finance, restructuring, and other financial aspects. It works across multiple industries and business sizes but focuses mainly on small to medium-sized businesses (SMEs).
So what’s happening with FRP Advisory shares currently? Well, as I write, they’re trading for 158p. At this time last year, the stock was trading for 125p, which is a 26% return over a 12-month period.
The investment case
I believe that FRP could be a prime growth stock based on current economic volatility and headwinds. Soaring inflation, the rising cost of materials, and a supply chain crisis have impacted many British businesses. Furthermore, looking back, the need for financial advice in recent years for the mid-market businesses that FRP serves has increased exponentially. There is no end in sight for this current economic volatility too it seems. The government recently confirmed that we could be in a recession by Christmas time. This does not bode well for SMEs.
All businesses need financial advice and support. Given the current economic climate, the government could intervene and provide SMEs with fresh financial support to ease current pressures. This could negatively impact demand for FRP’s expertise and services. This, in turn, could affect the firm’s performance and returns. For me this is the primary risk associated with buying FRP shares.
At current levels, FRP Advisory shares look decent value for money on a price-to-earnings ratio of close to 15. A general rule of thumb is that a ratio of 15 and below could represent value for money in line with other fundamentals such as performance and dividend yield.
As a bonus, FRP shares would boost my passive income stream through dividend payments too. The shares current dividend yield stands at 2.7% which is higher than the FTSE 250 average of under 2%. I am aware that dividends are never guaranteed and can be cancelled at the discretion of the business, however.
Finally, FRP has a good track record of performance growth. I am aware that past performance is not a guarantee of the future. Looking back, I can see it has increased revenue year on year for the past four years, and gross profit for the past three years. I believe based on the current economic climate and outlook ahead, FRP could continue this trend.
A growth stock I would buy
Overall, I believe the demand for advisory services that FRP offers will only increase in the shorter and longer term. For that reason, coupled with the shares looking decent value for money, and passive income opportunity on offer, I would buy FRP Advisory shares for my portfolio and keep hold of them for the long term.