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3 scorching-hot tech stocks — are they buys?

Image: Amino Technologies: Fair use

Today I’m looking at three of the most exciting and fast-growing tech stocks on the UK market.

These three companies have all beaten the market by at least 35% over the last two years. Today I’ll ask whether these top performers still justify a buy rating.

There’s no competition

I’m sure that most of us have browsed the paper or online pages of Auto Trader Group (LSE: AUTO) at some point. Since joining the FTSE 250 in March 2015, Auto Trader’s share price has risen by 51% and the group has joined the dividend list.

This business appears to enjoy many of the same advantages as property titan Rightmove. Auto Trader reported an underlying operating margin of 66% during the first half of the year, thanks partly to the number of consumer visits rising by 36% to 58.5 million during the period.

Auto Trader claims that its consumer audience is four times larger than that of the nearest competitor. The only risk I can see is that at some point in the future, large, Uber-type fleets of self-driving cars will make car ownership irrelevant.

Until then, I suspect Auto Trader will continue to deliver. On a 2017/18 forecast P/E of 23, the stock isn’t cheap. But net debt is falling rapidly. This could mean that share buybacks and dividends will be scaled up. I’d continue to hold.

A best buy?

Amino Technologies (LSE: AMO) makes set-top boxes for delivering internet TV to televisions and other domestic devices. It may sound like a dull business, but Amino’s performance over the last year suggests otherwise.

The group’s sales rose by 80% to £75.2m last year, thanks to the acquisition of rivals Booxmedia and Entone in 2015. Pre-tax profit rose by even more, climbing 96% to £10.2m. Strong cash generation enabled Amino to end last year with net cash of £6.2m.

Amino shares have risen by 75% over the last year, outperforming those of Auto Trader. But the stock’s valuation remains modest. Earnings are expected to rise by a further 29% to 13.2p per share this year, putting the stock on a forecast P/E of 15. Analysts expect dividend growth to be maintained at 10%, giving a prospective yield of 3.4%.

Investors need to watch out for any sign that Amino’s technology is becoming redundant. But the group’s attractive growth forecasts and modest valuation suggest to me that this stock remains a buy.

A punt on this stock could pay off

Investing in the shares of online gaming specialist 888 Holdings (LSE: 888) could turn out to be a profitable bet. The group failed in its attempt to buy rival bwin.party in 2015, but is delivering attractive organic growth.

888’s revenue rose by 19% to $262m during the first half of last year, thanks to strong results in Casino and Sports betting. Full-year earnings are expected to be in line with expectations, suggesting adjusted earnings growth of 18% in 2016.

Although the shares trade on a forecast P/E of 19, 888’s strong conversion of profits into surplus cash means that the stock still offers an appealing potential dividend yield of 4.4%.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Auto Trader and Rightmove. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.