Tech stocks on the rise
One of the fastest growing areas of technology is cloud computing. Data shows the cloud computing market is expected to grow at a annual growth rate of 16.3% between 2021 and 2026. K3 creates and sells IT-related products and software, predominantly using cloud computing tech, to improve efficiency in business operations.
As I write, shares in K3 are trading for 167p per share. At this time last year, the shares were trading for 119p, which is a 40% increase. 2021 was a good year for the K3 share price overall. The share price increased by nearly 70% from January 2021 to 2022. Many tech stocks have benefited from the pandemic-related need for tech and have seen share prices and performance increase steadily.
Why I like K3 shares
K3’s performance of late has been consistent and it seems to have turned its fortunes around from a few years ago when it recorded losses and there were profit warnings. In a positive trading update provided in December for the second half of the financial year ended 30 November 2021, K3 was bullish about full-year results as well. It said performance for H2 was in line with expectations and mentioned lots of key new client wins which would boost performance.
One of the other reasons I like K3 is its current healthy balance sheet. In the latest update, it confirmed net cash was £9m. This was more than double the level six months prior and even more so since the same time last year when the firm was in the red. When a firm is able to clear debt and accumulate cash, I see it as a positive. Many tech stocks prioritise re-investing in new tech and products to stay ahead of the curve. A healthy balance sheet enables this.
Finally, insiders own shares of K3. I personally am a big fan of insiders owning shares in a firm. Legendary investor Peter Lynch once said: “Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise”.
Risks and my verdict
K3 seems to have some momentum right now but issues could arise affecting its progress and performance. It has previously hit a sticky patch and failed to win major deals it expected to and recorded losses. There is the real risk this could occur once more. In addition to this, K3 is not exactly a household name. What I mean here is that despite its impressive client list and product stack, larger, more established competition in the tech world could beat it to the punch in terms of winning customers and producing cutting edge technology too.
Right now I really like K3 shares and would add some to my portfolio. It would be easy to buy shares in a big tech stock but sometimes these small cap gems can really take off over the longer term. K3 could be one such stock, especially with the rise in demand for cloud computing solutions in recent times.
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.