Full-year results from software provider Dotdigital Group (LSE: DOTD) delighted the market this morning and the share price is almost 8% higher as I write. So is the firm a hot growth stock as described in this articles headline? The directors think so, describing the trading period as a successful, dynamic year, driven by exciting globalexpansion.Indeed, earnings have been rising by double-digit percentages for several years, and the shares have risen by almost 900% since early 2012.
Operational momentum
The companys business of providing managed services to digital marketing professionals through its dotmailer email marketing automation platform has produced some impressive figures. Revenue is 19% higher than a year ago, earnings per share elevated 32% and the firms net cash position increased by 18% to a little over 20m. I always find it comforting when a company has no borrowings on its balance sheet, as is the case here. The directors indicated their optimism for the future by pushing up the dividend by almost 28%.
Operational momentum is pacey, and key performance indicators includeaverage revenue per user lifting 24% to 715 and overall volume of messages sentincreasing by 38% to 11.9bn. More than 550 new clients signed up to Dotdigitalsservice during the period, including well-known names such as BetFred, CNBC,Fannie May, Jack Wills, Superdry and The Premier League.
International expansion
The company has its sights set on international expansion and grew its revenue outside the UK by 48% during the year, which strikes me as a stunning rate of growth. If the firm can sustain that kind of performance, the growth outlook is exciting. Chief executive Milan Patel seems confident and said in the report: The market outlook remains strong which puts us in a good position to capitalise on our strategy and the Board remains confident about achieving our ambitious growth plans.
At todays share price, around 78.5p, the forward price-to-earnings (P/E) rating runs close to 29 for the year to June 2018, which isnt cheap, but could end up being reasonable for a firm with such robust growth prospects. Id rather take my chances with a growing business such as Dotdigitals than on fallen support services company Interserve (LSE: IRV), which is starting to look insecure.
Discussions with lenders
According to news reports on Monday, Interserve revealed that it is engaged in constructive and ongoing discussions with its lenders, which is enough to send me scurrying to the hills. The firms share price plummeted in September after it warned that profits would be significantly belowprevious expectations following grim trading in July and August. The firm is engaged in extracting itself from its energy-from-waste contractsbut now thinks the final costs of that tactic will be much higher than the 160m expected initially.
Interserve has proved the weaknesses of its business model. Multi-discipline contracting and outsourcing is a tough way to earn a living. Meanwhile, Dotdigitals software operation is growing earnings fast, so the choice between the two operations is stark, and Id rather go with the winning team.
Protecting the downside
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