Amazon and Facebook aren’t the only tech stocks soaring right now

Edward Sheldon looks at two small-cap tech stocks that are outpacing the tech giants for growth.

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Tech stocks in the US are flying right now. Over the last year, Amazon is up over 60%. Netflix has soared 80%. And Facebook has climbed 40%. Given that the FAANGS (these three plus Google and Apple) make up a significant proportion of the S&P 500 index, US investors have done well.    

UK investors could feel a little aggrieved. The FTSE 100 is full of banks and oil stocks, which haven’t seen the same level of gains.

Having said that, the UK is home to some very exciting technology companies at the smaller end of the market. And several of these stocks have generated stratospheric gains over the last 12 months. Here’s a look at two such companies.

The robots are coming

Blue Prism (LSE: PRSM) is a leader in ‘Robotic Process Automation.’ It enables blue-chip companies to create digital workforces powered by software robots that are trained to automate routine back-office tasks. Customers include IBM, Nokia, Aegon and Procter & Gamble.   

The concept sounds pretty exciting to me. So are the shares a good investment?

The thing to understand about Blue Prism is that while the company is generating strong sales growth right now, it’s not yet turning a profit. To my mind, that makes the investment case a little riskier.

Full-year results released this morning show revenue of £24.5m, an increase of 155% on last year. The group secured 609 new software deals over the year. These numbers look good.

Yet, on the downside, the tech firm generated an adjusted EBITDA loss of £8.3m, which is obviously not ideal. And it also announced two proposed placings to raise £40m and £30m, which will dilute existing shareholders’ stakes.

Overall, I’d say Blue Prism is a ‘speculative’ stock. The growth story looks exciting, yet with no profits, shareholders may experience a wild ride.

Explosive data volumes

One tech stock that is generating profits is big data specialist First Derivatives (LSE: FDP). The company builds software for the ultra-high-speed processing of large volumes of data.

First Derivatives has a long history of working with the world’s largest financial institutions, yet is now deploying its technology into other sectors such as energy and transport. As a result, the stock has been getting attention recently and its share price has surged almost 100% over the last year. Is it too late to buy now?

I’m attracted to the long-term story here. Revenue and profits have been growing at an impressive rate, and are expected to keep growing. For the year ending 28 February, analysts expect revenue and net profit growth of 18% and 78% respectively.

Having said that, the shares do look expensive at the moment. On a forward P/E of a high 64, I’m not convinced there’s much value in the stock at present, even though I’m a shareholder myself. That multiple simply doesn’t leave much room for error. In my view, investors may be better off waiting for a pullback here before committing capital.  

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 owns shares in First Derivatives. 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 (C 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. 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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