I'd buy while the S4 Capital share price suffers

As a shareholder in digital media agency group S4 Capital (LSE: SFOR), I read yesterday’s results with interest. They were a mixed bag. The S4 Capital share price has fallen 44% in a year and I expect it may continue to struggle in the immediate aftermath of the results.

I plan to keep my shares and even took advantage of a recent share price drop to add to my holding. It’s now large enough that I do not plan to buy any more, to make sure my portfolio remains diversified. But if I had fewer shares and spare cash to invest, I would scoop up more S4 Capital shares today.

Growth and losses

The highlight of the results was strong evidence that the company remains firmly in growth mode – and impressively so.

Last year saw revenues pass the GBP1bn mark for the first time, after surging 56%. The adjusted operating profit rose 20% to GBP114m. The firm secured a further 10 clients with annual revenue above £20m each.

It also said that “over the longer term we expect our growth to outperform our market and competition“. However, revenue growth has come at a cost. The firm made a loss of GBP160m, almost triple last year’s figure.

Net debt increased from GBP18m to GBP110m. There is a risk that continued growth will come at the cost of profitability.

Long-term outlook

Some of the numbers definitely look bad. The S4 share price has come a long way from its previous highs, and I think its large loss last year could further hurt investor enthusiasm for the shares.

That could push them down even more. As a long-term investor however, my focus is on how the company will do not only in coming months, but years and decades from now. Here I feel optimistic.

I think that positivity is supported by the latest results. S4 operates in an area I expect to see ongoing growth in coming decades, although digital ad spending may drop when the economy is weak, like it is now. The agency has a large global footprint and over 8,000 staff with a variety of skills.

By focussing heavily on large tech clients like Alphabet, S4 may suffer when tech firms do but, conversely, it ought to benefit from their long-term growth.

Share price recovery

Despite my own confidence, I am a bit concerned that no directors have bought shares so far in 2023. If the current S4 Capital share price is the bargain I think it is and the board is confident in the company’s prospects, I am surprised there has been no director buying. The coming year will be crucial for S4.

It needs to prove it can grow revenues without losses worsening. Indeed, in the long term, it must demonstrate its business model can be profitable. Until losses narrow I think the share price may stay in the doldrums.

I am holding (and buying) in the hope of better days ahead, even if they are still some distance away.

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