£10,000 buys 373 shares in this FTSE 100 heavyweight which is tipped to rise by 2026.
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The best time to buy stocks is when they are out of fashion for investors. And it definitely is Experian (LSE:EXPN) right now.
Analysts, however, expect the stock to bounce back. So with an average price target of 54% above the stock’s current level, is this a rare buying opportunity?
FTSE 100 heavyweight
Experian is one of the most impressive businesses in the FTSE 100. It has a huge competitive advantage that doesn’t take a lot of money to maintain.
A company’s edge comes from the data it uses to generate its reports. This comes from a large number of sources and includes much information that is not publicly available.
On top of this, Experian credit scores have become an important asset for US lenders looking to resell their credit. Although this has come up recently, it is still very much the case.
That’s why the company’s shares always trade at above-average multiples. But the stock market is currently thinking that the business may be a victim of artificial intelligence (AI).
The threat of AI disruption
AI can’t match Experian’s product – it doesn’t have the data. But the concern is that it can offer a very close alternative at a fraction of the price.
The FTSE 100 firm has an extremely strong position in the real estate market, but that is only one part of the business. Other things are things like payday loans and credit cards.
In these cases, lenders may think that an AI-driven background check that uses less data is good enough at a much lower price. And that’s a real threat that Experian has to deal with.
That’s why the stock has been falling. But the question for investors is whether it justifies the 34% fall from its peak, or whether investors are overreacting to new and unusual twists.
How strong is the business?
There are still no signs of disruption in the Experian results. The latest update reported organic revenue growth of 8% and we expect this to continue over the next few months.
However, investors need to think about this. With the type of threat a company is facing, things can change suddenly and without warning.
That means that the information that investors can get from looking at past results is very limited. This is always the case to some extent, but it’s especially true with Experian right now.
If AI competition starts to develop in key markets, the situation could change very quickly. So investors need to look beyond the numbers to assess a company’s strength.
Time to shop?
At its peak, a £10,000 investment in Experian bought 244 shares. Since the stock is now below that level, investors can get 373 shares for the same amount of money.
The analyst’s price target suggests that the stock is expected to bounce back in the near future. But I think investors should be a little more careful about this.
While its core mortgage business is well protected, I see other big threats happening elsewhere. And those need to be taken seriously.
I think the rise of AI creates extraordinarily good investment opportunities. But Experian is not a stock I’m rushing to buy right now to take advantage of.
