Tech stocks have been big money-makers over the last few years. In the US, mega names like Netflix and Amazon have seen their share prices double in two years.
Here in the UK, technology stars such as Rightmove and AVEVA may have grown more slowly, but shares in both companies have still doubled over the last five years.
Today, I want to look at two other UK-listed tech stocks for which many investors have big hopes. Could investing in either help you become an ISA millionaire?
I’d buy this cash machine
One of my top picks in the domestic technology sector is Moneysupermarket.com Group (LSE: MONY). The market-leading price comparison website needs no introduction. However, I suspect many website users don’t realise just how profitable this business is.
In 2018, it generated a return on capital employed of 50%. What this means is that the group’s operating profit of £108m represented 50% of the money tied up in the business. That’s an outstanding result, because it shows the firm is able to generate very high returns when it invests surplus cash in growth opportunities.
Management is currently spending some of this cash on developing a new generation of services. From what I can tell, these will provide higher levels of automated switching and tighten the relationship between the customer and Moneysupermarket.
I expect these changes to improve the firm’s ability to generate repeat income from customers — good news.
My view: Moneysupermarket.com shares have risen by more 25% in 2019. They now trade on 19 times forecast earnings, with a 4% dividend yield. In my view, this very profitable business is the kind of investment that could help you build a million-pound ISA. I’d keep buying.
Bargain buy or value trap?
My next stock is a more speculative choice. Taptica International (LSE: TAP) is an online marketing specialist that makes money by providing targeted advertising for brands through video and other channels.
Shares in the Israeli firm have fallen by about 55% over the last year. The majority of this decline has happened since December when former chief executive Hagai Tal resigned in connection with an alleged fraud at his previous company.
Although there’s no suggestion that anything’s wrong at Taptica, investors are understandably wary, given the group’s non-UK domicile and lack of leadership. Increasing uncertainty about the outlook for growth hasn’t helped either.
Today’s 2018 results do little to answer the questions faced by the firm. Revenue rose by 31% to $276.9m last year, while pre-tax profit rose by 57% to $27.2m.
The group ended the year with net cash of $54.4m and management reiterated plans to buyback $15m of shares, after the takeover of video advertising group RhythmOne has completed. Despite such strong figures, Taptica’s share price is only 2% higher at the time of writing.
What’s wrong?
RhythmOne was also hit by allegations of misconduct a few years ago and has struggled to recover. Although a profit is expected for 2019, it has reported a loss every year since 2015.
Taptica hopes to create a market-leading digital advertising business by combing its operations with those of RhythmOne.
My view: But shares in both firms currently trade on less than six times 2019 forecast earnings. This tells me the market is pricing in a lot of risk. That’s a view I share. So both Taptica International and RhythmOne are too speculative for me.
