I’m making my investment plans for 2024, and a growth stock that I want to take a closer look at is dotDigital (LSE: DOTD).
Software for digital marketing
dotDigital is what’s known as a software-as-a-service (SaaS) business. It provides solutions for digital marketing professionals.
dotDigital’s shares haven’t moved much over a 12-month period. They’re currently trading for 94p compared to 96p at this time last year. However, they looked to be heading upwards at 110p in February before market volatility ripped away progress and they dropped 14% to current levels.
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My investment approach
I reckon there’s some value in dotDigital shares right now. Going back in time a bit, they did well during the pandemic period. Businesses were spending more money to reach potential customers as they were locked down and had spare cash. Now that volatility has hurt the shares and wider market, the shares have dipped. At present, a price-to-earnings ratio of just 17 makes the shares look attractive to me.
This valuation is especially attractive when I consider the potential rate of growth on offer for the business. Digital marketing spend across the world is only rising, according to Statista. Analysts reckon dotDigital could see 13% revenue growth for the current fiscal year. However, it’s worth remembering that forecasts don’t always come to fruition.
Although past performance is never a guarantee of the future, I can’t ignore the fact that dotDigital has grown revenue and profit for the past three years in a row.
Finally, dotDigital shares would boost my passive income with a dividend yield of 1.10%. There are higher yields out there but if the business continues to grow, its level of payout could too. However, I do understand that dividends are never guaranteed.
From a bearish perspective, I reckon macroeconomic volatility is dotDigital’s biggest issue right now. Further woes and businesses deciding to spend less on marketing efforts could hamper performance and investment viability.
Another battle dotDigital must contend with is the fierce competition in the digital marketing solutions space. Some of its competitors are larger, which could pose problems for it. I’ll be keeping an eye on future updates to assess whether either of these risks could dent the shares considerably.
My plan
I’ve decided I will add some dotDigital shares to my holdings the next time I’m able to spare some cash towards my portfolio.
I’m interested in the valuation as well as the longer-term picture, which is the case for any stock I’m considering. I’d define this period as a five to 10-year timescale. dotDigital’s valuation is attractive, plus, its wide coverage and long-term prospects look good. I also like the fact it operates on a recurring revenue subscription basis. This helps performance remain stable too.
My only concern – which I’d be prepared for – is the uncertain short-term outlook and performance based on current economic turbulence and its impact.
