I’m considering adding to my position in Bloomsbury Publishing (LSE: BMY). The company has a great mix of growth and income characteristics, and has been trading well lately. This is why I think it’s one of my best stocks to buy now for my portfolio. Let’s take a closer look.
The investment case
Bloomsbury was the original publisher of the hugely successful Harry Potter books, and it still benefits from strong sales of the series. Indeed, in the half-year results to 31 August, Harry Potter and the Philosopher’s Stone was the UK’s fourth bestselling children’s book of the year-to-date. Remarkably, this was 24 years after it was first published. New stories are still being released, too. It provides Bloomsbury an excellent base for earnings and cash flow generation.
There’s also diversification in the business because Bloomsbury has a non-consumer publishing division. It covers Academic & Professional, Educational, and Special Interest publishing, which the company says generates more predictable revenue at higher margin. I’ve also been impressed by the launch of Bloomsbury Digital Resources (BDR). It’s an online research portal for the education sector and has been growing well of late. In fact, Bloomsbury recently said BDR reached its six-year target of £15m of sales and £5m of profit by the year ending 28 February 2022 (FY22).
Bloomsbury also released a positive trading update for FY22 this month, saying “revenue is expected to be comfortably ahead and profit materially ahead of market expectations.” It prompted City analysts to upgrade their own forecasts for the company. Revenue is now expected to rise by 12% in FY22, and profit before tax by 24%.
The valuation is reasonable to my mind. Based on a forward price-to-earnings ratio, the shares trade on a multiple of 18. This should fall to 17 in FY23 on forecasted earnings growth of 9%. However, I think Bloomsbury will beat these forecasts next year given the positive trading momentum right now. Also, the forward dividend yield is 2.5%, which is a good level of income for my portfolio.
Risks to consider even with my best stocks to buy
The first risk I see to Bloomsbury is competition for the consumer publishing division. Any new popular book, or a new trend within the wider entertainment sector, may reduce demand for Bloomsbury’s products.
The company has also been acquisitive of late. Bloomsbury acquired three businesses in 2021 to strengthen its consumer division, and Bloomsbury Digital Resources. There’s never a guarantee that another business will integrate well with the acquiring company. Different cultures might not blend well together, and there’s always a risk of overpaying for the business itself.
However, one final strength of Bloomsbury comes from the CEO, Nigel Newton. He founded the company back in 1986 and has grown the business to where it is today. Newton also retains a significant shareholding in Bloomsbury. This gives me confidence that his interests are fully aligned with shareholders.
Taking everything into account, I view Bloomsbury as one of my best stocks to buy today. I’d add to my position in my portfolio.
Dan Appleby owns shares of Bloomsbury Publishing. The Motley Fool UK has recommended Bloomsbury Publishing. 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.
