Why Imagination Technologies Group plc And Playtech PLC Are Surging Today

Imagination Technologies (LSE: IMG) and Playtech (LSE: PTEC) are two of the market’s biggest risers today, with their shares jumping 6.2% and 6.5% respectively at time of writing.

Playtech has risen following an upbeat set of first-half results, while Imagination has benefited from the prospect of merger activity within the semiconductor sector. 

Solid first halfstock exchange

Playtech, the supplier of choice to the global online gambling market, reported its interim results for the six months ended 30 June 2014 today. The company revealed a solid performance across all markets during the period. Total revenues jumped 21.5% compared to the year ago period. Additionally, adjusted profit rose 44.8% and adjusted earnings per share surged by 45.4% year on year. 

Alan Jackson, Non-executive Chairman, said:

“During the first six months of the year, Playtech continued to improve the way it develops its products, while growing revenue to an all-time high and managing its cost base, to again deliver an outstanding set of interim results.”

And there’s no doubt that the future is bright for Playtech’s investors. The company reported a net cash balance of €366m at the end of June, or around 124p per share. Unfortunately, this cash position was slightly worse than the level reported at the end June 2013. However, the lower level of cash can be attributed to the payment of a special dividend, which cost the company a total of £100m.

Moreover, additional special payments could be on the cards as Playtech’s earnings are expected to rise at a mid-single-digit rate over the next two years. The company currently trades at a forward P/E of 15.4. After stripping out cash the company is trading at a cash-adjusted forward P/E of 13.4.

Rising in sympathy img

Imagination Technologies is also rising today, although the company has not released any news. However, Imagination’s peer CSR has seen its shares soar by nearly 30% today on news that the company is considering a sale.

CSR has recently received various takeover bids from peers within the semiconductor-manufacturing sector. It would appear as if traders believe Imagination could be a takeover target as well. 

Should you buy in?

Is it worth buying Imagination off the back of this speculation? Well, at present levels Imagination’s valuation leaves little room for disappointment. Indeed, the company currently trades at a forward P/E of 31 and earnings per share are expected to fall 19% this year. What’s more, the company does not offer a dividend payout.

So, for the time being it could be time to avoid Imagination, until the company’s valuation falls to more attractive levels. 

But there are other opportunities out there. The key, when searching for growth stocks, is looking under the radar. You want to get on board while the company is still an unknown quantity, that way you won’t need to pay a premium in order to benefit from the company’s growth. 

Analysts here at the Motley Fool have identified a share that we believe has the potential to nearly double profits within the next four years. So, if you're a keen growth investor looking for ideas, download this exclusive report entitled "The Motley Fool's Top Growth Stock For 2014".

The report is completely free, but you've only got a limited time to claim your copy. To claim before it's gone -- click here today -- it's free.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK owns shares of Imagination Technologies. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.