If I Must Invest in Just One FTSE Stock, I Will Go for This

Summary

• Selecting a single stock for investment requires a lot of deliberation and a rigorous selection procedure
• In the current situation, many FTSE 100 stocks are trading at deeply discounted valuations and offer a plethora of opportunities for the investors
• An important selection criterion is that the business proposition should have the strength to survive tough cycles

While there are many promising stocks that an investor could choose for a good return, there are a few that have the potential that makes them the strongest contender which can create value in the future.

If one has to select a single stock, then it is a tough task as it’s like going against the common investing principle of putting all the eggs in one basket. But if one has to choose just one stock, then assessing the best in the lot is the first and foremost goal.

The first criterion is to understand the business of the company. One should see whether the business can give a good return, the business proposition should have the strength to survive tough cycles, the product and services offered should be having a robust competitive advantage, management needs to be fair and should be making decisions in favour of all the stakeholders. And lastly, the shares should be priced fairly.

Right now, many FTSE 100 stocks are trading at deeply discounted valuations and offer a plethora of opportunities for the investors. If one has to select a stock for long-term investment, the present market condition offers a variety of options. One can choose after going through all the required processes and thorough research.

One such stock we would discuss here is The Hut Group, which trades on the London Stock Exchange as THG Holdings Plc (LON:THG). The company belongs to the online retailing sector, which has seen the strongest growth in 2020 due to the pandemic crisis. It is one of the most successful tech unicorns in the UK and has come up with an IPO in September 2020, which has become the largest listing on LSE so far.

On 16 September, when it started trading at LSE, it was valued at £4.5 billion. By mid-day trade, its valuation increased to £5.9 billion, given the massive demand for its stocks among investors. The shares of the company have been going strong since then.

Also Read: Stellar Debut of the Hut Group- Can It End the IPO Dry Spell Of 2020?

The Rise of the Online retailing sector

The disruptive change that the pandemic has brought to the retail industry has made online retailers the largest value creators on the LSE this year. Several companies, like The Hut Group have taken advantage of this situation of increased investor interest in online retailing businesses to raise funds. The valuations that these retail companies have been able to achieve in such a short span could have been difficult in normal economic conditions.

There has been significant rise in online retailing over the years and especially during the lockdown period. This year in particular the online retail has recorded the lifetime high, contributing one-third of all retail sales in the country.

The Hut Group Story

Founded in 2004 in Manchester, Matthew Moulding started The Hut Group with an initial investment of £500,000. The company initially created white-label websites for Tesco, WHSmith, ASDA and Argos Entertainment and focused more on entertainment products like music and gaming.

At its inception, the company had raised seed funds from private investors, like former CEO of Tesco Sir Terry Leahy and Lord Rose, former Chairperson of Ocado, providing it with a strong base.

Backed by a strong institutional investor base, the company also made a series of acquisitions over the years which brought it substantial inorganic growth. Some of the most prominent names in its list of acquisitions are Zavvit, I want one of those (IWOOT), Preloved, Coggles, Myprotein and UK2 Group. The company now operates more than 100 websites internationally selling fast moving consumer goods direct to customers through its proprietary platform. By 2019, the company had more than 7,000 employees worldwide, and its revenues exceeded more than £1.14 billion.

If we talk about the financials, the company has surprised the street by raising its guidance for FY2020 for the second time within just two months. The company at the time of its third-quarter trading update release, guided the FY2020 revenue growth of 30-33 per cent, compared to FY 2019, which has now been increased to 38-40 year-on-year. The main reason for this was the sharp upward revision in the Q4 revenue growth guidance to 40-45 per cent year-on-year as against the October guidance of 16-25 per cent. THG has also maintained its medium-term outlook of annual revenue growth of 20-25 per cent and steady adjusted EBITDA margins.

The share price performance of THG Holdings Plc (since listing)

(Source- EODHD/Others Thomson Reuters)

The shares of THG Holdings plc were trading at GBX 671.44 per share as on 7 December 2020, (12.06 PM GMT+1) gaining 3.53 per cent over the previous day’s close.

Investment decisions should always be made after much deliberation and adequate research. If one has to select one stock, all the selection steps should be followed as any hasty decision or considering only a few selection criteria can result in a partial or substantial loss. The stock discussed in the report is selected randomly based on the performance and business proposition to showcase the resilient business model and is not a suggestion or recommendation.