Today I’m looking at two growth stocks in the technology sector. Shares in both companies have risen by 50% or more over the last year, but I believe these businesses could continue to grow as their core markets expand.
Identity protection
Shares of identity data specialist GB Group (LSE: GBG) rose by 12% in early trade this morning, after the technology group said that full-year results would be ahead of consensus forecasts.
Adjusted operating profit for the year to 31 March is expected to rise by 53% to £26m, while revenue is expected to be 37% higher at £119.7m. Despite a number of acquisition-related payments during the year, net cash rose from £5.2m to £13.4m.
Identity data services are increasingly important for many businesses. GB aims to meet these needs by “combining trillions of data records relating to people’s identity”. It then makes this data available to more than 15,000 clients in 71 countries. The firm’s services are mainly used for fraud protection, marketing intelligence and employee screening.
There’s more to come
Shares of this fast-growing firm aren’t cheap. But its operating profit has risen by an average of 33% each year since 2012, and it’s expanding into a fast-growing market.
GB Group is now a £700m business. I believe further growth is likely, especially as the new General Data Protection Regulation (GDPR) regulations have created a substantial extra compliance burden for many businesses this year.
Analysts are forecasting earnings growth of about 15% for the 2018/19 financial year. This leaves the stock on a forecast P/E of about 30, with a dividend yield of just 0.7%.
This valuation doesn’t leave much room for disappointment, but I believe earnings are likely to continue growing over the next few years. I’d rate the shares as a growth buy.
Engineering big gains
FTSE 250 industrial software specialist Aveva Group (LSE: AVV) helps companies manage the design, construction and operation of big, expensive engineering projects. Sectors where the group operates include shipping, oil and gas, infrastructure and chemicals.
The firm’s business has been transformed this year by a merger with the software business of French group Schneider Electric. This complex deal only completed in March so we haven’t yet seen any trading results or management guidance for the combined group.
However, what we do know is that City analysts have become increasingly optimistic about the outlook for the company this year. In January, Aveva said that revenue was expected to be ahead of expectations for 2017/18. Since then, broker profit forecasts for both 2017/18 and 2018/19 have edged higher, supporting the stock’s strong momentum.
More to come
I believe that the main driver of further gains is likely to be the growing recovery in the oil and gas sector, which is the group’s largest market.
Although oil producers are already enjoying the benefits of higher oil prices, service companies such as Aveva are only just starting to see improvements. In its January trading update, the firm reported “stabilisation of conditions” and “the closing of a significant contract” with a key global customer.
I believe that growth is likely to continue over the next few years as energy companies start to invest in major new projects. Although Aveva shares aren’t cheap, I believe this stock remain an attractive bet for long-term growth.
