The Covid-19 pandemic has accelerated the demand for technology. I have a dedicated tech section on my best stocks to buy now list. One pick I really like is Cerillion (LSE:CER). Should I add shares to my portfolio at current levels?
FTSE AIM star
Founded in 1999, Cerillion is a provider of billing, charging, and customer management systems based in the UK. It focuses on providing its products and services primarily to the telecoms industry as well as others too. It has many customers across the world but some of its more recognisable names to the UK market are G4S and mobile network Three.
My best stocks to buy now are usually on an upward trajectory and Cerillion is no different. Its share price has increased in the past 12 months by over 160%. This time last year, shares were trading for 295p per share. As I write, shares are trading for 784p per share. So, what has contributed to this sudden share price explosion for the tech provider?
My best stocks to buy now perform consistently
Cerillion’s fiscal year runs from September to September. Full-year results are expected around November. In its most recent trading update released in May, it covered the six months to March as a half-year update. These results made for excellent reading in my opinion.
Cerillion reported record performance for new orders in H1, up 148% compared to 2020 levels. It also reported its largest ever contract win. Revenue rose by 25% compared to 2020 levels. Recurring revenue also rose an impressive 26%. In addition to all this, profit before tax was up 124% compared to the same period last year too. Net cash also rose by 60% too.
I understand that past performance is not a guarantee for the future. I personally use this as a gauge when assessing investment viability. Cerillion does have a favourable track record. In the past four years, revenue has been increasing year-on-year. In the same period, gross profit and net income have also been increasing year-on-year too. Most of my best stocks to buy now have good historic track records.
Risk and my verdict
I have two main concerns with Cerillion and its investment viability. First, at current levels it is valued a bit high. With a price-to-earnings ratio of over 50, it could be susceptible to a share price drop on the back of negative news. In addition to this, recurring revenue has not always been its strong point. Recurring revenue can be a good combatant to top line uncertainty but despite increasing recently, Cerillion could do more to secure recurring revenue for the future.
There is a lot to like about Cerillion hence why I place it on my best stocks to buy now list. It has a strong balance sheet as well as a favourable performance track record. It also pays a dividend which would help me make a passive income if I invested. Furthermore, it also has a strong pipeline of future business ahead too which will help boost performance further.
Right now, I would be willing to buy shares at current levels. I believe full-year results will be favourable and result in a further share price rise. I would be willing to add shares to my portfolio at current levels and keep an eye out for full-year results and future performance too.
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.