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2 exciting stocks that could make you brilliantly rich

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Alfa Financial Software Holdings (LSE: ALFA) is a newcomer to the London Stock Exchange, only listing in May this year. Demand for the IPO stock was so strong, that many investors missed out on their desired allocations, and as a result, the shares shot up by 30% to 430p on the first day of trading.

Founded in 1990, Alfa specialises in asset financing software, and develops IT systems that are used by companies to manage loans for the purchase of assets such as cars, planes and office equipment. Customers include Barclays, Mercedez-Benz and Nordea. Having released just a few news announcements since listing in May, investors will no doubt be eager to examine today’s half-year results. 

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Strong results  

The numbers look impressive, with revenues rising 57% to £45.1m and operating profit increasing 15% to £14m. Adjusted diluted earnings per share surged 128% to 5.7p. The group gave an upbeat outlook, stating that it “continues to see a strong and diverse pipeline of opportunities which underpin the Board’s confidence into 2018 and beyond.”

The market appears to be pleased with the results, and the shares are up 8% as I write. So is now the time to buy?

While Alfa certainly appears to have strong momentum, I’d personally be a little hesitant about jumping into the stock right now.

Its market capitalisation currently stands at over £1.3bn, which seems quite high for a company that is forecast to generate revenue of £86m this year. Furthermore, on forecast FY2017 earnings of 10.5p per share, the forward P/E ratio is a high 43.8, which doesn’t leave much room for error. Alfa looks to be an exciting software company, however, I’d be inclined to watch the stock from the sidelines for now.

Micro Focus International

One stock that does look interesting at present, in my view, is FTSE 100 listed Micro Focus International (LSE: MCRO). Micro Focus is a global software company that helps customers merge new technology solutions with existing IT infrastructure systems, in order to meet complex business demands.

The stock has been a brilliant performer over the last five years, rising from around 550p to 2,270p today, a gain of over 300%. However the share price has declined in recent months, ahead of the company’s acquisition of Hewlett Packard Enterprise (HPE), which is set to complete tomorrow.

It’s no surprise that the merger has knocked sentiment, as the $9bn purchase of HPE’s software business is set to add a significant pile of debt to the balance sheet, which clearly adds risk to the investment thesis.

However, for long-term investors, I believe the share price fall may have created an opportunity. The merger with HPE is set to create one of the largest tech firms in the UK, and one of the world’s “largest pureplay infrastructure software companies”, with combined revenues of around $4.5bn. Furthermore, management believes it will give the company “considerable scope to improve profitability through the application of Micro Focus’ disciplined operating model.”

City analysts estimate that the combined entity will generate earnings per share of $1.81 for FY2018, which places the stock on a forward P/E ratio of a reasonable 16.2. The company also looks to have dividend appeal, having increased its dividend for 11 consecutive years and currently yielding 3.1%. For those looking for UK tech exposure, Micro Focus could be a solid long-term investment, in my opinion. 

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Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has recommended Micro Focus. 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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