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3 Tech Stocks That Could Smash The FTSE 100: ARM Holdings plc, Pace plc And Imagination Technologies Group plc

ARM Holdings

It’s been a rather disappointing year thus far for a number of UK-listed tech stocks. Indeed, the likes of ARM (LSE: ARM) (NASDAQ: ARMH.US), Pace (LSE: PIC) and Imagination Tech (LSE: IMG) are all in the red this year, with a weaker wider market not helping to improve sentiment in the three stocks.

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However, their long-term futures look bright and they could be well worth buying a slice of at current price levels. Moreover, they could outperform the FTSE 100 moving forward – here’s why.

ARM

Although sentiment in ARM is at a low ebb, the company continues to offer the most reliable earnings growth profile among UK tech companies. Indeed, during the last five years, ARM has increased earnings in each year and is forecast to do the same in each of the next two years.

Certainly, its growth numbers are lower than their previous highs, but ARM still seems to offer growth at a reasonable price as it becomes a more mature and less risky proposition. With ARM currently trading on a price to earnings growth (PEG) ratio of 1.3 and having a nimble, fast-paced business model that is key in its niche, it could be well-worth buying at current price levels.

Pace

After issuing a profit warning three years ago, Pace has moved from strength to strength. Earnings have risen by 49% since 2011 and are set to increase further over the next two years at a rate of 12% in the current year and 8% next year.

Despite this, the company continues to offer top notch value for money. This has been aided by a recent fall in its share price, with shares in Pace falling by 39% since March of this year, and means that they now trade on a price to earnings (P/E) ratio of just 9.5. With above average growth prospects, this equates to a PEG ratio of just 0.8, which means that Pace could prove to be a superb play over the medium term.

Imagination Technologies

Also falling heavily this year is Imagination Tech, with its share price being a third lower than in June 2014. Indeed, Imagination Tech is set to disappoint investors in the current year, as its bottom line is expected to be 16% lower than it was last year.

However, this is not an unusual occurrence for Imagination Tech. Over the last five years its bottom line has been hugely volatile but, over the medium term, it generally moves in the right direction. So, it’s of little surprise for this year’s disappointing estimates to be followed by an upbeat growth forecast of 36% for next year.

This puts Imagination Tech on a PEG ratio of 0.5, which means that it offers volatile growth at a reasonable price and, as a result, could outperform the FTSE 100 in the future.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended ARM Holdings. 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.

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