Why I believe a sharp price dip makes this FTSE 100 share attractive!

Businessman looking at a red arrow crashing through the floor
Businessman looking at a red arrow crashing through the floor

If you are the kind of investor that craves quality, this FTSE 100 stock should be on your wish list, regardless of the sharp plunge in its price! The company is none other than Sage Group(LSE: SGE), which provides accounting software.

Buy fear

It is currently trading at its lowest price in the last year, in a tumble that started with the stepping down of its CEO, Stephen Kelly, and got exacerbated by the fact that a new appointment has not yet taken place.

Stability equals quality

So why do I think a company with a leadership vacuum is worth considering?

Just consider its financials: Sage has consistently shown growth in both revenue and income in recent years, and there is little reason to expect anything to the contrary in the present year either. It has reported 6.5% revenue growth in the 9 months of FY18. It continues to be optimistic about the future as well, hoping to achieve its target of 7% growth for the entire year. The company’s profits also continue to look good, which is promising for investors looking at dividends.

I also like the nature of Sage’s business. Clients are likely to stick with a single accounting software over a long period of time, given the time and focus it takes to adapt to a new one. This means that there is dependability in revenue for the company. Only a dramatically lower price or exceptionally competent competitor software is likely to be a game changer. While Sage indeed has increasing competition, the threats do not appear to be significant enough yet to uproot it.

Riding out of uncertainty

A fair next question as an investor then is – if all looks good, then why did the company’s CEO step down?

I reckon that the CEO’s exit was more an indication of the company’s recent past performance than a sure indication of the future. Besides the fact that Kelly’s term did not see as much of a pickup in the cloud business as was hoped, the financial update on the first half of 2018 also reflected challenges. The company admitted to “inconsistent operational execution” and projected slightly lesser growth moving ahead. Less than four months later, Kelly exited.

Don’t jump the gun

Sage’s financials seem to have regained their stability according to the latest earnings release, however. It has also started hiring in key positions again, and it is only a matter of time before it hires a new CEO as well. The company might face growth challenges going forward as newer, more agile competitors take a lion’s share of new business lines. But for the foreseeable future, focusing on that aspect would be jumping the gun. It is worth remembering that Sage has proven itself as a strong, stable company with an ability to provide good investor returns. This will count in the years to come.

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Manika does not own shares in any company mentioned in this article. The Motley Fool UK has recommended Sage Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.