FTSE AIM incumbent Kape Technologies (LSE:KAPE) has seen its share price increase by over 100% in the past 12 months. What’s prompted this rise and should I buy the shares for my portfolio?
Cyber security specialist
Cyber security is a major concern for businesses and consumers alike as the digital revolution continues to speed up, driven by the pandemic. Kape Technologies is a software business specialising in cyber security software solutions. It designs and sells its own proprietary tech through a number of its own brands. Kape possesses an international reach with operations in 11 countries through its 750 employees.
As I write, the shares are trading for 400p. At this time last year, the shares were trading for 195p, which equates to a 105% return over a 12-month period. Looking back even further, five years ago the shares were trading as a penny stock for 48p. There aren’t many FTSE stocks that have returned over 700% across a five-year period.
For and against buying shares
FOR: Kape has performed well consistently for a number of years through organic growth and key acquisitions. Reviewing past performance, I can see revenue and gross profit has increased year on year for the past four years. Of course, past performance is not a guarantee of the future. Kape’s most recent update, an interim report released in October for the six months ended 30 June was positive too. I can see that overall revenue, recurring revenue, operating profit, and cash generation all increased compared to the same period last year. It also completed a key acquisition of Webselense for close to $150m to enhance its offering.
AGAINST: The tech and cyber security market is saturated and extremely competitive. Many of the firms in this space that do well have a rich history of performance and brand recognition. There are bigger names with better reach in this space than Kape, which could affect customer numbers and in turn, performance and shareholder returns.
FOR: I like when a firm makes acquisitions to enhance its offering and beat off competition. Kape has a consistent history of doing this. I particularly liked its most recent addition to the Kape umbrella, ExpressVPN, one of the best known VPN services around. This deal was completed at the end of last year and gained Kape millions more customers and lots of revenue.
AGAINST: Despite my personal, bullish attitude towards acquisitions, there is always the risk that they don’t work out. Kape, like any firm completing acquisitions, could end up overpaying for a business or the business may not perform as expected. This can affect the balance sheet and potential shareholder returns too.
A FTSE stock I would buy
Overall, I really like Kape Technologies and I would add the shares to my holdings at current levels. It has grown at a rapid rate in a burgeoning tech market despite some heavy hitters out there like Avast and McAfee. Recent and past performance has been excellent and it continues to acquire excellent businesses to enhance its offering.
I expect the cyber security market to continue growing. I think Kape should command a slice of this market and perform well for my portfolio in the long term.
