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Finding the best shares to buy is a challenge that almost all investors encounter. Sometimes, we’re lucky enough to stumble on a lump sum of capital. And while there are alternative investing options to the stock market, UK shares have proven to be a terrific source of returns over the long run.
Even after enjoying a rally so far this year, the British stock market’s still filled with terrific buying opportunities. So if I had a £1,000 lump sum right now, here’s how I’d go about finding them.
Start at the portfolio
My investing journey started over a decade ago. And during that time my portfolio’s grown and changed. As such, finding new companies to diversify into isn’t really a top priority for me anymore. As such, whenever I start looking for the best shares to buy, I always begin with companies I already own. And that’s what’s brought dotDigital (LSE:DOTD) to the forefront.
This small-cap digital marketing group has developed a multi-channel cloud-based advertising platform. It enables marketing experts from various businesses, particularly in the e-commerce space, to create, manage, and run their own ad campaigns.
There are a lot of platforms like this out there today, resulting in a lot of competition, especially when it comes to e-mail-based solutions. However, dotDigital has nevertheless managed to carve out a sizable niche over the years. And looking at the group’s latest progress, its market share seems to be getting wider.
The launch of its artificial intelligence (AI) analytics platform in 2023 now enables marketing teams to analyse their mailing lists to granular details where predictions can be made. dotDigital’s AI forecasts which individuals are likely to spend more money, how much, and when, paving the way to highly personalised and effective marketing that boosts spending across the board. And so far, we’ve already seen the company’s average revenue per customer jump almost 30% in just one year.
A buying opportunity?
Over the last couple of quarters, dotDigital’s revenue, cash flow, and earnings have all been heading in the right direction. More encouragingly, the trends show that this growth’s accelerating. After over a year of going through an advertising winter on the back of higher inflation, it’s a welcome sight for shareholders.
Despite this upward trend, the share price is still moving in the wrong direction, falling by around 15% since January. It seems that investors want to see more progress before granting this business a new wave of momentum. And after seeing the stock collapse by 80% in the wake of the 2022 stock market correction, this isn’t all that surprising.
However, at a forward price-to-earnings ratio of 17, dotDigital seems to be trading at a reasonably cheap valuation, especially in comparison to its historical average of around 30 times earnings. There’s no denying that fierce competition’s a significant threat. But with management seemingly successfully capitalising on the tailwinds of improving economic conditions, it’s a risk I feel’s worth taking at today’s prices.
That’s why I believe dotDigital could be one of the most rewarding shares to buy today for my portfolio, if I had the cash to spare.
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