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2 top tech stocks I’d buy in March

You might not have heard of small-cap tech stock Maintel Holdings (LSE: MAI) before, but that does not mean you should overlook this fast-growing business.

Built around customers 

Maintel is a cloud and managed services company, which focuses on the provision of digital communications for clients. In plain English, the firm provides cloud-based conference calling software as well as business management software to help streamline companies’ customer communication operations, such as call centres. 

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This is just a basic overview of Maintel’s operations. The group also has several partnerships with other cloud-based service providers such as Cisco, Talk Talk Business, BT Wholesale, SSE Telecom and Microsoft, which allows it to build the best package of services around customers’ needs. 

And it certainly looks as if customers are pleased with the offering. Indeed, today the firm reported that its revenue jumped 23% to £133m for the year to 31 December and basic earnings per share leapt 36% to 21.7p. 

Since 2012, revenues have expanded nearly 400%, from £28m to £133m as reported today. Unfortunately, the company has failed to convert this sales rise into bottom-line growth. Earnings per share have hardly budged since 2012 as the firm is having trouble building a sustainable competitive advantage to support profit margins. 

For example, last year management had hoped that a contraction in margins reported during the first half would be reversed by the end of the year thanks to new customer agreements and synergies from acquisitions. However, it was clear this was not going to be the case.  Lower-than-anticipated revenue from two large legacy contracts and the greater-than-expected impact of contract delays prompted management to issue a profit warning at the beginning of December

Still, despite Maintel’s problems, there’s no denying that the company is growing rapidly, and right now, it looks as if the market is giving no credit to this growth. Specifically, the shares are currently trading at a forward P/E of 9.6 and support a dividend yield of 4.6%. The payout is covered twice by adjusted earnings per share and today management has announced a 10% increase in the full-year distribution

Growth at a reasonable price

Another tech stock that’s recently caught my eye is IMImobile (LSE: IMO). Like Maintel, this company provides cloud communications software for businesses. However, unlike Maintel, IMImobile has been able to transfer sales growth to the bottom line. Since 2012, net profit has grown at a rate of around 20% per annum as revenue has expanded at a compound annual rate of 15%. 

City analysts are expecting IMI’s profit growth to continue on its current trajectory. Analysts have pencilled in earnings per share growth of 51% for 2018 followed by an increase of 22% for 2019. These projections suggest that the shares offer growth at a reasonable price trading at a PEG ratio of 0.5 for 2018. 

As well as this growth, IMI also supports a cash-rich balance sheet with net cash of £14m at the end of fiscal 2017. Maintel has a net debt position of £28m. With this being the case, I’m inclined to believe that IMI is a better buy than Maintel if you’re looking for a fast-growing small-cap tech stock trading at an attractive valuation. 

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Rupert Hargreaves owns no share mentioned. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool’s board of directors. LinkedIn is owned by Microsoft. The Motley Fool UK has recommended Cisco Systems. 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.

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