Could this tech sector stock help you become an ISA millionaire?

This highly profitable company could be a buy despite recent share price gains, says Roland Head.

| 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.

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 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: 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.

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.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon and Netflix. The Motley Fool UK has recommended and Rightmove. 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

Black father holding daughter in a field of cows
Investing Articles

A FTSE 100 share that could create generational wealth

Investing in FTSE shares can help individuals pass down a significant chunk of cash to their children and grandchildren, data…

Read more »

Investing Articles

Here’s what the BT share price could mean for passive income investors

The BT share price has been falling for years, but that might be about to change. And dividends could be…

Read more »

Investing Articles

At £4.76, is the Aviva share price a steal? Here’s what the charts say!

Aviva has outperformed the Footsie over the last year. But is there still value in its share price? This Fool…

Read more »

Photo of a man going through financial problems
Investing Articles

Does a 43% price drop make this undervalued UK stalwart one of the best cheap shares to buy now?

After losing a third of its value of the past five years, this might be one of the most undervalued…

Read more »

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

My top 3 picks today for a £20,000 Stocks and Shares ISA

Here are three very different investments to consider for a Stocks and Shares ISA, covering both the UK and US…

Read more »

Businesswoman calculating finances in an office
Investing Articles

The Darktrace share price has been surging — and it could climb higher

I think the Darktrace share price could have more room to run. Despite the competitive AI industry, the firm looks…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

With its 7% dividend, should I be watching the Aviva share price?

Dividend investors will struggle to find many companies with a yield above 7%, so should the Aviva share price be…

Read more »

Investing Articles

Could this be one of the FTSE 100’s best cheap dividend shares?

Looking for the best dividend growth shares to buy? Our writer Royston Wild thinks this FTSE 100 housebuilder might well…

Read more »