Why I just invested $3,000 into this ASX 200 growth share

This stock looks like a strong long-term pick to me.

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The S&P/ASX 200 Index (ASX: XJO) growth share Johns Lyng Group Ltd (ASX: JLG) looked too good value to ignore last week, so I invested $3,000 when the Johns Lyng share price was $5.79.

For readers who don't know what this business does, it describes itself as an integrated building services group that provides building and restoration services across Australia and the US.

Its core offering is focused on rebuilding and restoring a variety of properties and contents after damage by insured events including impact, weather and fire events.

Its customer base includes major insurance companies, commercial enterprises, local and state governments, body corporates (also called owners' corporations) and retail customers.

I'll tell you about the three main reasons that I invested.

The ASX 200 growth share was much better value

If we look at the chart below we can see that it's down 33% since April 2022, and it was down a bit more when I invested.

The price/earnings (P/E) ratio of a business looks much more appealing when the share price falls but the profit is still growing.

In FY23, its normalised earnings per share (EPS) grew by 39.5% to 18.8 cents and statutory EPS rose 75.3% to 17.9 cents. On Commsec the projection is that it could generate 21.9 cents of EPS in FY24 and 24.7 cents of EPS in FY25. In other words, ongoing growth.

For FY24, the business has guided that its 'business as usual' (BAU) earnings before interest, tax, depreciation and amortisation (EBITDA) is expected to grow 20.1% to $113 million with BAU revenue growth of 18.5%. This shows it's expecting its profit margin to rise again in the new financial year.

At the current Johns Lyng share price, the FY24 forecast would imply it's on a forward P/E ratio of 28, which seemed reasonable to me for its potential long-term growth.

Johns Lyng's core offerings are growing strongly

I like seeing businesses grow their revenue at a good pace because it helps both the compounding of net profit after tax (NPAT), as well as providing scale benefits.

In FY23, we saw its core insurance building and restoration services division deliver a 32.2% rise in revenue to $775.3 million and catastrophe revenue jumped 125.3% to $371.3 million.

There sadly seems to be a growing trend of damaging (and expensive) storms in both the US and Australia where the company operates. The Johns Lyng CEO Scott Didier recently said:

We are seeing the continuing trends of longer-tail recoveries, coupled with counterparties (especially governments) looking for relationships with service providers that are multi-project and multi-year in nature. Johns Lyng's business model gives us the best opportunity to win a large proportion of this significant and important work.

I certainly hope that there is less damage over the long term, but this ASX 200 growth share is providing an integral service to help the recovery and it's seeing enormous growth in this area.

Diversification of earnings

I'm excited by the synergies that Johns Lyng can create with its expansion and acquisition into two different offerings. One is strata and property management, and the other is essential home services including smoke alarm compliance and fire safety services.

There are more than 3.1 million strata titled lots nationally, according to the company, which "represents a compelling investment and growth opportunity with inherent revenue synergies in collaboration with the group's other businesses."

Johns Lyng said that for each dwelling it can provide insurance building and restoration, emergency trades, scheduled trades and so on.

The home services division can generate annuity-style subscription revenue, which can also provide cross-selling opportunities and deliver long-term growth with a growing number of properties in Australia.

I think these two newer areas can deliver substantial benefits to profit and the Johns Lyng share price over the longer term.

Motley Fool contributor Tristan Harrison has positions in Johns Lyng Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Johns Lyng Group. The Motley Fool Australia has recommended Johns Lyng Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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