The tech sector is a hugely exciting and potentially profitable space. And, while here in the UK we are somewhat limited in terms of the number of tech stocks from which we can choose to invest, there are a number of highly profitable companies that offer great value for money and superb growth prospects.
Chief among them is Laird (LSE: LRD). It is a highly profitable business (and has been in each of the last four years) and is expected to increase its bottom line by 19% in the current year, followed by further growth of 10% next year. Certainly, this is less than a number of its tech rivals, but the crucial quality of Laird at the present time is that it trades on a relatively low valuation multiple. In fact, Laird has a price to earnings (P/E) ratio of just 16.7, which means that it has a price to earnings growth (PEG) ratio of just 0.9.
Similarly, Spirent (LSE: SPT) also offers excellent growth prospects at an appealing price. It has grown its bottom line in four of the last five years and, looking ahead, is expected to increase its net profit by 19% this year, and by a further 23% next year. That’s a stunning rate of growth and, when combined with a P/E ratio of 19.8, equates to a PEG ratio of only 0.7. This indicates that Spirent could continue to see investor sentiment pick up, which has allowed its share price to rise by 16% since the turn of the year.
Meanwhile, smaller UK-listed tech stocks also hold great appeal. For example, Telit Communications (LSE: TCM) has an excellent track record of profit growth and has been able to more than double its bottom line over the last four years. And, looking ahead, it looks set to benefit from increasing demand for products within the so-called ‘internet of things’ space, with its bottom line set to rise by 87% by the end of 2016 (versus 2014). Furthermore, with Telit having a PEG ratio of just 0.2, its margin of safety appears to be very wide and provides investors in the company with a very appealing risk/reward ratio.
While the likes of Laird, Spirent and Telit offer superb potential rewards, Monitise (LSE: MONI) (NASDAQOTH: MONIF.US) is a rather disappointing stock which has been unable to turn a profit. That’s despite it having an excellent product, with major UK banks utilising its mobile banking apps and, while a new management team may turn things around following a change in strategy, it lacks appeal when compared to other UK tech stocks.
And, looking ahead, Monitise is expected to be loss-making in each of the next two years. Certainly, it has excellent long term potential but, when compared next to the likes of Laird, Spirent and Telit, it comes a rather distant fourth in terms of its risk/reward profile.
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Peter Stephens owns shares of Laird. The Motley Fool UK owns shares of Monitise. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.