When it comes to buying into tech-focused growth stocks, today’s investors are spoilt for choice. However, two stocks have performed better than most in recent years, and it looks as if this trend is set to continue.
Even though Ocado (LSE: OCDO) is consistently listed as one of the UK’s top 10 most shorted stocks, shares in the company have returned nearly 75% over the past 12 months, and just under 450% over the past five years. And today, shares in the online food retailer are heading higher once again after it announced a new international partnership, its second in three months.
Ocado has agreed on a deal to partner with Sobeys, Canada’s second largest food retailer, to create an online grocery business in the country. Under terms of the agreement, the two parties will develop their first customer fulfilment centre in the greater Toronto area. Ocado will provide support and engineering services for e-commerce operations for which “Sobeys will pay Ocado certain upfront fees upon signing and during the development phase, then ongoing fees linked to installed capacity.”
For years, Ocado has drawn criticism for its lack of international deals, which have been promised by management ever since the group’s founding. International licensing agreements guarantee a steady revenue stream without the hassle of running a food retailer. Now management has inked two such deals in less than six months (the previous contract was with Groupe Casino in France), it’s starting to look as if the business is taking off.
Ocado has struggled to live up to the City’s expectations for growth virtually ever since its IPO in 2010. Now, however, it looks as if the group is finally making headway, which gives me confidence that it can meet the City’s lofty growth targets. Analysts are currently expecting the firm to report earnings per share of 1.3p for 2018, giving a forward P/E of 344. Even though this looks pricey, I believe that following the deal with Sobeys, analysts will be raising their expectations higher over the next few months. City optimism should result in further gains for the firm’s investors.
Cashing in on takeaways
Takeaway food delivery specialist Just Eat (LSE: JE) is another one of the market’s growth favourites. Over the past five years, shares in this tech company have added 173% and, over the past 12 months, the shares are up 52%.
Shares in Just Eat are slightly cheaper than those of Ocado. At the time of writing, the stock is trading at a 2018 P/E of 33.8, which looks cheap considering that analysts are expecting earnings growth of 42% for the period.
Analysts at Barclays believe that these growth estimates could be undervaluing the company’s potential and I’m inclined to agree. The recent introduction of a 50p order surcharge, acquisitions, and the 2018 FIFA football World Cup are all catalysts that could ignite revenue growth in the year ahead. There’s also Just Eat’s international expansion to consider.
Put simply, multiple catalysts could drive Just Eat’s shares in the year ahead. Even if the company doesn’t beat City expectations for growth, even on current forecasts, the shares still look cheap trading at a PEG ratio of 0.8.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Just Eat. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.