Over the last six months, few investors have been focused on the stunning performance of UK tech stocks. That’s understandable, since a lower oil price, continued declines in the prices of other commodities, and the potential impact of a change in government have made them switch their focus to other industries. However, in the last six months, the likes of ARM (LSE: ARM), Spirent (LSE: SPT) and Laird (LSE: LRD) have easily outperformed a strong FTSE 100, with their share prices rising by 34%, 22% and 20% respectively versus a very respectable 12% for the wider index.
Furthermore, looking ahead there is still great potential for price rises from those three companies, plus Pace (LSE: PIC) and Imagination Tech (LSE: IMG) which, although underperforming the FTSE 100 in the last six months (their shares rose by 10% and 8% respectively), have considerable long term potential.
Clearly, tech stocks are never going to be the most stable or consistent of companies when it comes to bottom line performance. However, with the banking sector, mining sector, oil sector, consumer goods sector and a whole host of others seeing their earnings numbers decline drastically at one time or another in the last five years, on a relative basis tech stocks may be less volatile than many investors believe.
And, surprisingly, all five stocks mentioned above have betas that are less than 1. This means that their share prices should change by less than 1% for every 1% move in the value of the FTSE 100, which means that if the wider index does endure a period of instability following the General Election, then tech stocks may feel it to a lesser extent than most companies on the index.
Looking at the track records of the five companies, they are more consistent than many investors may realise. For example, ARM, Pace, Laird and Spirent have all managed to increase earnings per share in four of the last five years, with Imagination Tech managing to do so in three of the five years. That’s impressive – especially when you consider that it has been a challenging period for the sector and for the wider economy.
And, looking ahead, strong growth is forecast for all of the stocks, with Pace being the only exception. Its bottom line is expected to flat line in the next two years, but this appears to be more than priced in to its present valuation, with it having a price to earnings (P/E) ratio of just 8.2. In fact, with ARM’s price to earnings growth (PEG) ratio being just 1.5, it appears to offer growth at a reasonable price, with Spirent, Imagination Tech and Laird also offering the same via PEG ratios of just 0.9, 0.8 and 1 respectively.
So, while the focus of investors may be elsewhere at the present time, the UK tech sector appears to be a great place to invest.
Peter Stephens owns shares of Laird. The Motley Fool UK has recommended ARM Holdings and Pace. 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.