IQE plc and this high-flying stock could help you become an ISA millionaire

This reasonably-priced growth stock could complement IQE plc (LON: IQE) in your portfolio.

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

Today’s full-year results from data-focused marketing solutions provider Taptica International (LSE: TAP) topped off a year during which the shares rose more than 100%.

The firm describes 2017 as “transformational” after new international offices and acquisitions drove “significant” revenue growth. The directors think that international expansion during the year created a solid foundation for building further growth in its performance and brand advertising businesses.

Organic and acquisitive growth

The figures speak for themselves. Revenue came in 68% higher than 2016, net cash from operations elevated 52% and adjusted diluted earnings per share lifted 31%. In a sign of confidence in the outlook, the directors pushed up the final dividend for the year by 25%.

Chief executive Hagai Tal said most of the growth came from new offices in the Asia-Pacific region, “where consumers continue to increase their use of apps and accessing the internet on their mobiles.”  During the year, Taptica bought Japan’s Adinnovation and America’s Tremor Video DSP to achieve wider coverage in the Asia Pacific region and in the US, which Mr Tal reckons are “the two standout regions for growth in digital ad spending.” Tremor also diversified the firm’s revenue into the growth area of brand advertising.

Taptica enjoys “sustained demand” supported by consumers embracing the use of apps, which is a strong trend. The outlook is positive, and the firm plans to build a business that is “truly global in scale.”  Meanwhile, City analysts expect earnings to grow 2% during 2018 and 12% in 2019, suggesting workmanlike progress ahead. But the current valuation looks reasonable. Today’s share price around 360p throws up a forward price-to-earnings (P/E) rating just below 11 for 2019 and a forward dividend yield around 1.5%.

Forward earnings rising

That’s a keener valuation than we are seeing with tech superstar IQE (LSE: IQE). Investors holding the advanced wafer supplier’s shares have enjoyed a rise of more than 230% since January 2017, although there’s been volatility in the price over the last few months. That’s not surprising because there’s a lot at stake given the high earnings multiple — today’s share price around 130p put the historical P/E rating at just over 36.

However, valuations are about looking forward and in this month’s full-year report the firm said that its record financial results reflect the mass-market adoption of its VCSEL technology while a broadening IP portfolio “sets the Group for continuing diversification and growth.” City analysts’ predictions are starting to look perkier. They expect earnings in 2019 to increase by as much as 39%, which brings the forward P/E rating down to a less-demanding 23 or so.

If IQE can sustain its high double-digit rate of earnings growth going forward, we could even see a valuation re-rating driving the shares up from here. Chief executive Dr Drew Nelson said wafer revenues rose 21% during 2017, pushing adjusted operating profit from wafer sales up 58%. He puts that outcome down to high operational gearing working alongside a more profitable sales mix. I think there is strong potential for higher profits down the line with IQE and that both these stocks would sit well in a longer-term diversified ISA portfolio aimed at growing capital towards a million.

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.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

A pastel colored growing graph with rising rocket.
Investing Articles

How much passive income could I make for every £1,000 invested in Aviva shares?

Even a relatively small investment in Aviva shares could generate much greater passive income, particularly if the dividends are reinvested…

Read more »

Close-up of British bank notes
Investing Articles

I’m considering 100 shares in this FTSE 250 gem to aim for £300 a month in dividends

Mark Hartley outlines why a lesser-known banking stock from the FTSE 250's worth considering for an income portfolio in 2024.

Read more »

Investing Articles

History suggests these UK shares might soar if interest rates are cut in August

Some UK shares could rocket if interest rates fall from its 5.25% high next month. And there's one our writer…

Read more »

Female Doctor In White Coat Having Meeting With Woman Patient In Office
Investing Articles

Here’s why H1 results could boost the AstraZeneca share price

The AstraZeneca share price has been a success story in the past five years. With H1 results due, can it…

Read more »

Investing Articles

£17,365 in savings? Here’s how I’d use it to target a £6,700-a-month passive income

Here's how a lump sum investment could pave the way for me to make a four-figure monthly passive income in…

Read more »

Investing Articles

Down more than 10% in 6 months, Fools are backing these 5 UK stocks to reverse that – and then some! – by 2025

Some of our UK free-site writers have put forward their candidates for turnaround stocks!

Read more »

Investing Articles

Down 23%! Should I buy more CrowdStrike shares for my Stocks and Shares ISA?

Sometimes bad news can be good news for long-term investors. But is that the case for CrowdStrike in relation to…

Read more »

Investing Articles

2 UK shares near 52-week lows I’m considering snapping up

These UK shares are loitering near, or at, 52-week lows. Are these prime opportunities for our writer to boost her…

Read more »