We’re hearing more and more about ‘Big Data’ and its potential to fundamentally change the way businesses and organisations are run. But what is it and how can private investors take advantage?
What’s the big deal?
Put simply, big data refers to the vast amount of information that businesses generate on a day-to-day basis from transactions, social media and/or machines they own. This data may come in a variety of formats, from standard numeric data to unstructured documents, email, audio and video. The fact that so much potentially valuable information is now produced from so many different sources means it needs to be organised and processed…
We’re hearing more and more about ‘Big Data‘ and its potential to fundamentally change the way businesses and organisations are run. But what is it and how can private investors take advantage?
What’s the big deal?
Put simply, big data refers to the vast amount of information that businesses generate on a day-to-day basis from transactions, social media and/or machines they own. This data may come in a variety of formats, from standard numeric data to unstructured documents, email, audio and video. The fact that so much potentially valuable information is now produced from so many different sources means it needs to be organised and processed as soon as possible.
Analysed appropriately, big data can improve decision-making and strategy. It can make businesses more efficient by helping to reduce costs and time spent doing ineffective work. It can determine why a product may be defective or a service may be failing and even detect things like fraudulent behaviour. Big data can assist with product development, ensuring that a business offers exactly what its customers need. It can also tap into buying habits, allowing a company to offer incentives to encourage customers to keep returning. Given this, it’s no wonder that governments, banks, manufacturers, retailers and healthcare providers are so keen to harness its potential.
Along with cybersecurity and robotics, it seems likely that big data will be a key investment theme for the future, especially as developments such as the Internet of Things gather pace. As such, investors may want to investigate two companies that look likely to benefit from the surge of interest in this area.
With a market cap of just £82m, multi-award-winning analytics specialist, Fusionex International (LSE: FXI) is unlikely to be on many institutional investors’ radars, despite boasting clients such as Royal Dutch Shell, Ford and American Airlines. Back in June, the company launched Giant 2016, its software-as-a-service model. Significantly cheaper than its original Giant offering, it’s hoped that the former will appeal to small and medium-sized organisations.
If Fusionex continues to secure clients despite intense competition (at least two multi-million dollar contracts have been signed since Giant 2016’s launch), its shares could see a significant rerating when results for the full year are released in Janurary. Although a return to profit isn’t expected until 2018 (explaining why its share price has remained in the doldrums since early 2016), I remain positive on the company’s massive growth potential.
What consumers are thinking
An alternative to Fusionex could be YouGov (LSE: GOV). The £243m cap market researcher’s flagship intelligence service allows businesses to understand what consumers think of their brands and their rivals. This is plainly useful for any company but particularly for one that operates in a highly competitive industry. Last week’s annual results highlighted a 16% growth in revenue and a 27% jump in operating profits, allowing the company to hike its dividend by a stonking 40%.
In the last year, YouGov’s shares have done extremely well, rising 69% from 137p to today’s price of just over 231p, easily eclipsing the last peak of 203p way back in 2007. Unfortunately, this leaves its shares trading on a forecast price-to-earnings (P/E) ratio of 27. For some, this may be too expensive. Given the expected growth ahead, I’m not so sure. As mentioned here, even highly valued shares can turn out to be bargains over the long term.
Although nothing can be guaranteed in investing, learning to recognise a promising small company and buying its shares ahead of the herd can turbocharge your portfolio and allow you to smash your financial goals a lot sooner than you think.
If' you're willing to take on board more risk for the possibility of higher returns, you should definitely read a special report by the experts at the Motley Fool. They've found another top small-cap share that could offer substantial rewards to investors in the medium-to-long term.
The best bit? Its utterly, totally, completely free. Click here for you copy
Paul Summers owns shares in Fusionex. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.