The Sage Group plc isn’t the only top-performing growth stock making investors wealthy…

The Sage Group plc (LON: SGE) shares have almost doubled over the last three years. However, Edward Sheldon has identified a small-cap stock that has performed even better.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Computer Keyboard

Image: Public domain: Fair Use.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Many tech stocks across the world have performed very well over the last year. While the popular FAANG stocks (Facebook, Amazon.Com, Apple, Netflix and Google) in the US have received plenty of attention, under-the-radar tech stocks listed in the UK have also rewarded their shareholders handsomely. Here’s a look at two such stocks making their investors wealthy.

The Sage Group

FTSE 100-listed Sage (LSE: SGE) provides integrated accounting, payroll and payments solutions to businesses of all shapes and sizes around the world. The stock has been an excellent performer in the recent past. This year, the share price is up 20%. Over a three-year investment horizon, the stock has almost doubled.

The group released final FY2017 results this morning, and stated that its transformation programme, which began in June 2015, is now complete. The payroll specialist recorded organic revenue growth of 6.6% for the year, and enjoyed a 10.3% rise in organic operating profit. It stated that 78% of its revenue now comes from recurring sources. Adjusted earnings per share for the year rose 7.4% to 33.1p, significantly beating analysts’ estimates of 29.8p. The dividend was lifted by a healthy 9% to 15.4p per share.

Do the shares still offer value after such a strong run? At the current share price of 784p, Sage trades on a trailing P/E ratio of 23.7. The dividend yield is just under 2%. While those metrics perhaps look a little expensive, I feel that the company has momentum at present. Indeed, Chief Executive Stephen Kelly today commented: “We now have the leadership, organisational alignment, brand and comprehensive suite of cloud solutions, to accelerate momentum in our markets.” Analysts expect further revenue and earnings growth in coming years and the upwards trend of the chart looks promising. As a result, I believe there could be further gains to come from Sage.

Quixant

Turning to the small-cap area of the market, £283m market cap Quixant (LSE: QXT) has been another wealth-generating machine for tech investors over the last few years. The group designs and manufactures advanced hardware and software solutions for the global gaming industry. The stock is only up 21% this year, but since listing on the AIM market in 2013 at a price of 46p, investors have been rewarded with a spectacular return of over 800%. Can Quixant continue to make its shareholders wealthy? I believe so.

It appears to have strong momentum right now. Last year, revenue rose 116% and earnings per share jumped 47%. This year, City analysts expect top-line growth of 18% and an earnings rise of 20%. Half-year results released in September were excellent, with management stating: “The demand for our gaming platforms and monitors remains strong and we are confident in achieving market expectations for the full year.”

The stock currently trades on a P/E ratio of 28, which is clearly high, yet in my opinion, not outrageously high. That level of valuation suggests to me that investors acknowledge the exciting growth story, yet have not got carried away. For long-term investors, I believe there could be further gains to come. Broker Finncap recently lifted its price target to 500p.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has no position in any shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Alphabet (A shares), Amazon, Apple, Facebook, and Netflix. The Motley Fool UK has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool UK has recommended Sage Group. 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.

More on Investing Articles

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Here’s how I’d target £496k in FTSE 100 shares and £19k of passive income in a Stocks & Shares ISA

I invest as much surplus cash as I can at the end of the month in my Stocks and Shares…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Is Rolls-Royce’s share price an irresistible bargain?

Is Rolls-Royce's share price the FTSE 100's greatest bargain today? Royston Wild explains why he would -- and wouldn't --…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Is the Vodafone share price a wonderful bargain or a horrible value trap?

As the Vodafone share price continues to fall, is it now a stock to buy with a view to a…

Read more »

Hand of a mature man opening a safety deposit box.
Investing Articles

I’d buy 95,239 shares of this banking stock to generate £200 of monthly passive income

Muhammad Cheema takes a look at how Lloyds shares, with a dividend yield of 5.9%, can generate a healthy monthly…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Can FY results give the Antofagasta share price a long-term boost?

The Antofagasta share price has had a good five years. Now the company says it's set to enter a new…

Read more »

Person holding magnifying glass over important document, reading the small print
Dividend Shares

Can I make sustainable passive income from share buybacks?

Jon Smith notes the rise in share buybacks from FTSE 100 companies, but flags up why they aren't great for…

Read more »

Front view of a mixed-race couple walking past a shop window and looking in.
Investing Articles

After the Currys share price rockets, here are more potential UK takeover targets!

The Currys share price has surged 39% higher in response to news of a takeover bid. Which UK stocks could…

Read more »

Investing Articles

Down 25%, where will the British American Tobacco share price go next?

The British American Tobacco share price has taken a hit. But this Fool isn't deterred. He think's now could be…

Read more »