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Is this tech stock set to be the next ARM Holdings?

ARM Holdings was the UK’s best-known and biggest listed tech stock prior to it being bought recently. Its departure from listed status means there’s now a hole in the UK tech scene. Could this company be the one to fill it?

IT infrastructure products and services specialist Softcat (LSE: SCT) has released an upbeat set of results for the year to 31 July. They show that the company is making good progress with its strategy. Evidence of this can be seen in its rise in revenue of 12.8% and increase in adjusted operating profit of 15.2% versus the previous year.

These figures were achieved against a backdrop of modest growth in the UK economy. This has been reflected in slow growth in the IT market, which shows that Softcat is a relatively resilient stock during difficult periods. It has been able to deliver impressive new contract wins and to increase the amount spent by existing customers. It has achieved this through a focus on customer service, which has helped to differentiate it from sector peers.

However, Softcat’s outlook is somewhat disappointing. In the current financial year it’s forecast to record a rise in earnings of just 1%. This could prove to be a temporary blip and a return to higher levels of growth may take place in future years. However, with the company’s shares trading on a price-to-earnings (P/E) ratio of 15.4, they seem to lack appeal given that near-term outlook. As such, it may be worth waiting for an improved profit performance before buying-in.


Also reporting today within the tech sector was Oxford Metrics (LSE: OMG). It provides products and services for the life sciences, entertainment and other sectors. Its trading in the final part of the financial year has been strong. This means that revenues in excess of £29m will be reported, which is ahead of last year’s figure of £25.8m and is also ahead of market expectations.

OMG’s pre-tax profit will be in line with expectations. Its Vicon business has performed well in all geographies due to recently refreshed products. It has also benefitted from weaker sterling versus the US dollar. Similarly, OMG’s Yotta has continued to benefit from a strengthened recurring software revenue stream in the UK and in international markets. However, the firm has decided to discontinue OMG Life in order to focus on Vicon and Yotta.

Looking ahead, it’s forecast to record a rise in earnings of 20% in the current financial year. This puts it on a PEG ratio of only 0.7, which indicates that it offers excellent value for money. Furthermore, its strategy to focus on Vicon and Yotta should allow it to develop faster growth and more efficiencies over the medium term.

While it still has a long way to go to reach ARM’s size and status, OMG seems to be a worthy buy for tech-focused long-term investors.

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