1 UK tech growth share that’s doing very well

This well established and profitable tech stock has raised its expectations and could possibly have further room for share price growth. But would I buy?

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Everyone knows good tech growth shares only list in the US, right? Wrong. The UK has some great tech shares, but they often don’t trade on the same extremely high price-to-earnings multiples that US-listed peers do.

One such high-performing UK-listed share is identity data specialist GB Group (LSE: GBG). Just yesterday, it lifted expectations. Its shares yesterday were up over 4%, on a day when the market was broadly flat.

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What did it announce?

The technology group lifted its expectations as a result of solid recent performance. Management now says financial results for the full year will be ahead of consensus expectations with forecast revenues to be at least £213m, and operating profit above £53m.

Conditions in 2021 so far have been favourable. The company has been able to under-promise and over-deliver (which is always a good combination), because of increased transaction volumes driven by the spike in Bitcoin market activity, as well as retail share trading in the United States and Europe.

The company also said that it saw a positive impact from financial stimulus packages in the US.

What could be the drivers of future growth?

Increased buying online and more digital banking are two trends that I think are likely to keep boosting the shares. It’s a way to tap into the increased digitalisation in our lives and I think its an attractive share. It also has solid fundamentals, it’s profitable with high margins, so there’s a lot to like.

The increasing move to digital is also driving demand for its key services – fraud prevention and detection plus identification services. This, along with increased compliance and cybersecurity demands within financial services should keep revenues ticking up. 

What are the risks facing this growth share?

As with any tech share, there’s a technological risk. Technology can quickly become obsolete or a competitor can just offer a better service. Facebook killed off Bebo, Google made life very tough for Yahoo and there are so many other examples. Technology is a dynamic industry. There’s always a risk that key customers could move to a rival in future and often the change in fortunes is swift.  

More immediately, there’s a risk that the conditions (which have allowed for the upgrade this week) now change and it loses the tailwinds that have helped it over the last two months.

Finally, as with all technology stocks, there’s a valuation risk. Earnings growth at GB Group has been modest and it does trade at a P/E of around 38. For an innovative tech company, this is broadly in line with other UK tech shares, but it’s still high compared to other sectors.

So while GB Group is a UK tech growth share that’s doing very well, I’m not sure I’ll be rushing to add it to my portfolio.

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Andy Ross owns no share mentioned. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool UK owns shares of and has recommended Alphabet (A shares) and Facebook. 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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