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1 of the top UK shares with compelling reasons to buy

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All of the UK shares worthy of inclusion in a portfolio should exhibit the potential for driving decent investor returns over time. And I think I’ve found one worth consideration now.

Staffing and recruitment specialist SThree (LSE: STEM) is trading well. And January’s full-year results report headlined with: “Record profit performance up 24% driven by continued demand”.

Materially ahead of expectations

The company describes itself as a global specialist talent partner focused on roles in Science, Technology, Engineering and Mathematics (STEM). And for the trading year to 30 November 2022, the business delivered a net fee performance “materially ahead” of the directors’ prior expectations. And it came in 19% higher year on year.

The outlook statement was bullish. And I think the outperformance combines with those positive expectations to make SThree worthy of further research.

Meanwhile, with the share price near 443p, the forward-looking earnings multiple is just above 10 for the trading year to November 2024. And the anticipated dividend yield is about 3.8%. That valuation isn’t outrageously high. And the balance sheet looks strong.

However, there’s no denying the vulnerability of the business to general economic cycles. And that shows up in a patchy multi-year record for earnings, cash flow and shareholder dividends.

On top of that, the share price has been generally moving sideways rather than higher over the past decade and a half. However, past performance is not a reliable guide to the future. And it’s possible that the business could enter a sustainable period of growth. Indeed, the stock may break above its prior trading range, although such outcomes are never certain.

Growth is happening

However, as well as having cyclical characteristics, it looks like the enterprise is growing. And a multi-year holding period may help investors capture some of the potential upside from business expansion.

I see the revenue record as encouraging. In 2017, the company achieved a turnover of £1,115m. But City analysts predict revenue will grow to around £1,588m in the trading year to November 2024. And that leads to the compound annual growth rate for revenue running at about 8%.

In January, chief executive Timo Lehne said the company has a clear strategic vision and an execution plan”. And it’s centred on an analytical and fact-based approach. Meanwhile, SThree has a “healthy” contract orderbook. And general macroeconomic and geopolitical conditions have been improving since the end of last year.

Lehne reckons the firm’s global reach combines with its specialist niche focus in structural STEM disciplines to underpin a proven “resilient” business model. And the business is in a strong position to pursue its “unique” opportunity over the medium to long term.

So, despite the risks, I think the business and the stock look attractive now with a long-term holding period in mind. It could, for example, sit well in a diversified portfolio of positions aiming for dividend income and capital growth.

Investors with spare cash may like to dig in to the opportunity now with their own deeper research and form their own opinion.

The post 1 of the top UK shares with compelling reasons to buy  appeared first on The Motley Fool UK.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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