You can understand why many growth stocks have fallen deeper than the wider market this year, particularly those that are loss-making. Online staff training and engagement company Learning Technologies (LTG:AIM) does not fit this profile, yet its stock has been hammered just the same.

Highly profitable and cash-generative (it even pays a modest dividend), analysts have twice this year increased profit margin estimates, yet the share price has fallen 26% in 2022, tracking far slower technology growth businesses.

We believe this trend will reverse and stock market participants will conclude a low-teens price to earnings multiple does not fairly reflect mid-teens net income growth and operating margins pushing towards 20%.

Learning Technologies provides a range of customisable talent management and learning software solutions to more than 2,000 corporate and government clients.

In a world where keeping your best people has become harder, Learning Technologies’ services are part of the career development pathway that keeps productive staff happy.

It has a buy and build strategy, with a dozen or so acquisitions now under its belt, including GP Strategies, a $343 million deal in summer 2021.

Operating margins at GP Strategies have doubled to 9.2% since being acquired, which speaks volumes for Learnings Technologies’ operational streamlining, such as stripping out unnecessary layers of management and duplicated back-office jobs.

There are positives to draw from its latest trading update on 26 July, such as news that half-year revenue will be at least £280 million versus prior expectations of £274 million, and adjusted operating profit of more than £43 million, also beating forecasts (for £38.9 million).

‘With margins raised in GP Strategies to a run-rate level of 15% by the end of full year to 31 December 2023, this is what causes our circa 6% uplifts to 2023 and 2024 earnings before interest and tax at a group level,’ said analysts at Berenberg in response. EBIT is effectively another way of saying operating profit.

The group operates in a rapidly growing digital learning market estimated to double in value to $400 billion by 2026, according to Statista data, with roughly 40% based in the US, justifying Learning Technologies’ push into that region in recent years. Last year more than two-thirds of its overall £258 million revenue was earned in the US.

Analysts see the share price moving beyond 200p, and perhaps to 275p, over the coming 12 months or so, implying upside of 50% to 110% (bull case).

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