1 tech stock I’d buy and hold forever

Zaven Boyrazian breaks down a tech stock that’s helping the transportation industry become much more efficient and cheaper to operate.

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The transportation industry has a lot of moving cogs to ensure everything runs smoothly. However, the rapid expansion of both railway, and general traffic over the last 50 years has created enormous inefficiencies that this tech stock is helping to eliminate.

The tech stock opportunity

Tracsis (LSE:TRCS) is a software solutions business for the transportation industry. It uses innovative technologies to increase the performance of UK transport operators while simultaneously reducing expenses.

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Since its IPO in 2007, the company has built up its reputation within the sector. Today it serves some of the largest transport operators and authorities – including Network Rail, and the Department for Transport among other government agencies.

The business can be broken down into two segments that roughly generate a balanced proportion of revenue.

The Rail Technology & Services segment allows its clients to use its proprietary Remote Condition Monitoring (RCM) system. RCM continually monitors the electrical pulses travelling down railway lines to detect any irregularities in real-time. If a problem is detected, the railway operator can send in a team of engineers to further investigate the issue and perform any necessary maintenance before it evolves into a severe problem.

The second segment is Traffic & Data Services, which is responsible for a slightly higher proportion of the revenue stream. The firm engages with clients in the collection and analysis of traffic data. Using geographical information systems (GIS), clients can painlessly perform traffic and parking management for popular events. These data services are further extended to local authorities for better transportation route planning within rail, traffic, and pedestrian-rich environments.

The financials and risks ahead

The tech stock has flourished over the past five years, with annual revenue almost doubling to £43m in 2019. However, the 2020 interim report suggests that revenue growth is accelerating. The first two quarters of 2020 reaped £26.4m alone – 41% higher than the previous year.

This growth primarily originates from the Traffic & Data Services segment of the business. Tracsis secured a new multi-year contract in Ireland, as well as profiting from the vast array of planned events in the second half of 2020.

However, this growth may be short-lived, at least temporarily. The Covid-19 pandemic has led to many events being cancelled or postponed for the foreseeable future, and with it goes the increased revenue.

Fortunately, the Rail Technology & services segment has been able to transition to a remote working approach and thus can continue to carry the business forward throughout the pandemic.

The bottom line

So far, the majority of growth achieved by the firm stems from acquisitions, rather than organic growth. But this may soon change.

Tracsis has begun expanding into North America, which presents an enormous opportunity for the Rail Technology & Services segment.

Here in the UK, the National Rail network consists of approximately 10,000 miles of rail tracks. North America has over 140,000 miles. The US expansion is a slow process with ongoing paid trials among transit operators.

Tracsis is on my watchlist and if it’s successful, then I think my portfolio could see explosive returns from this tech stock.

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Zaven Boyrazian does not own shares in Tracsis. The Motley Fool UK has recommended Tracsis. 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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