3 reasons to buy Veda Group Ltd shares

Although the stock has been sold heavily, there are plenty of reasons to like this stock for the long term.

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Shareholders of data analytics business Veda Group Ltd (ASX: VED) are likely becoming nervous as the stock continues to gain downwards momentum.

Since climbing as high as $2.55 in March from its December IPO price of $1.25, the stock has dropped 20% to be trading at just $2.04. In fact, in the last two weeks alone it has given up 10.5% while, in the same time, the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has dropped just 1.6%.

It looks as though investors could be becoming wary of the stock’s high projected P/E ratio (currently at around 27) and taking their profits. After all, those who have held onto the stock since the IPO have still made more than 63%not bad for just over six months in the market!

However, even though the short term could hold more volatility, I believe there are still plenty of reasons to like the stock. Here are three of those reasons.

  1. The Global Financial Crisis highlighted just how important it is to only lend to customers who can repay their debts. While stricter credit reporting standards will soon be introduced, Veda is in the prime position to benefit as its products allow businesses to assess their potential customers’ credit and fraud risks.
  2. Veda maintains records on 20 million people as well as 5.7 million businesses. While customers want the best and most reliable information, this acts as a huge competitive advantage in such a small market!
  3. When we invest, we want to know our money is in safe hands and that the company is capable of growing profits. While the stock’s P/E ratio of 27 might seem expensive upon first glance, it is actually quite reasonable considering Veda has a strong track record for increasing revenues and earnings. In fact, some estimates suggest EPS could increase by more than 15% between 2014 and 2015!

An even better ASX growth stock…

At today’s price of $2.04, I am strongly considering buying shares in Veda Group. However, there is another stock I just can’t seem to look past – and it’s one that I already own! Its shares have also fallen in price lately and, given its excellent long-term growth potential and fantastic fully franked dividend yield, I can’t help but think I should be buying more

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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