Why I think this growth stock is a great opportunity

Jabran Khan dives deeper into a telecoms and cloud architecture provider that he tips as a great growth stock opportunity.

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A growth stock I really like the look of right now is Gamma Communications (LSE:GAMA).

Gamma is a leading provider of unified communications as a aervice (UCaaS) in the UK and European business markets. It builds and supplies communication solutions for its customers directly and via a channel partner model. Through investment and in-house development, Gamma possesses an extensive range of communication services. As a result, it also owns a significant amount of intellectual property. The company currently operates in the UK, Germany, Netherlands, and Spain and is continuing to expand its reach.

Great growth stock

Gamma Communications has been a FTSE AIM incumbent since 2014. Since it’s first issue at 205p per share, GAMA has experienced unprecedented growth of over 650% in its share price. At the time of writing, shares can be purchased at 1,595p per share. This seems like an exciting growth stock for me and I only see things getting better.

When the stock market crashed, GAMA saw its share price drop by just over 30%. Shares could be purchased at its lowest price of 970p. Since that low, GAMA’s share price has recovered over 60% to current levels.

Performance

In March, Gamma announced full-year results for the year ending 31 December 2019. There were some seriously impressive takeaways in my opinion. Revenue increased by 15% to £328.9m while profit increased by 26% to £166.5m. There were confirmations of acquisitions as Gamma continues to execute a growth strategy. In the UK market alone, Gamma saw its indirect (channel partner model) business grow by 22% and its direct business increase by 16%.

In a more recent update in July, the upward trend continued for Gamma despite the economic downturn. There were three new acquisitions announced of companies in the UK, Spain, and Germany, which will further increase market share. The UK acquisition was that of a Microsoft Teams specialist, which will increase GAMA’s reach to those using Teams. Acquisitions interest me as they indicate a well-performing company looking to grow and expand its reach.

Despite the economic downturn, GAMA did not utilise any government support or furlough any staff, which I think is a sign of a prosperous business. Order levels were not quite the same as pre-Covid but since restrictions have eased it has seen an increase in queries and orders back towards pre-Covid-19 levels. Net cash stood at £37.7m, which was slightly down compare to the same period last year. This mainly due to several acquisitions.

My verdict

Gamma Communications is the epitome of a growth stock in my opinion. It has experienced growth for a number of years now with revenue and profit increasing year on year. Additionally, it shows no signs of slowing down as the leadership team are intent on taking over the UCaaS market throughout Europe with regular strategic acquisitions. This type of technology is slightly behind in countries such as the UK and Germany so there is scope for growth there.

The economic downturn has not affected Gamma and I believe it will continue to flourish as businesses continue to invest in technology to automate ways of working. Gamma has no debt and is cash rich with no need for government support. I firmly believe this growth stock will continue to thrive as more people discover this hidden gem. 

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 considered so you should consider taking independent financial advice.

Jabran Khan 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.

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