The UK stock market isn’t known for its tech stocks. That’s because the main UK index, the FTSE 100, has very little exposure to technology.
However, in the mid-cap and small-cap areas of the UK stock market, there are plenty of exciting technology stocks. And many of these have delivered enormous gains for investors in recent years.
Here, I’m going to highlight three I’d buy today for 2021 and beyond. I think they all have a lot of potential in today’s digital world.
This UK tech stock is flying
One tech stock with a lot of momentum right now is Cerillion (LSE: CER). It’s a leading provider of cloud-based (SaaS) billing, charging, and customer management systems. Since it was founded in 1999, it has completed over 90 customer installations worldwide.
I listed Cerillion as my top micro-cap stock in November. Since then, it’s performed very well, rising about 35%. However, I think there could be plenty more growth to come here. Recent results were strong, with revenue and earnings up by 11% and 13% respectively and the back order book up 41%.
CEO Louis Hall sounded confident about the future, stating: “We have a strong new customer pipeline and view both short and longer-term prospects very positively.”
After its recent share price rise, Cerillion doesn’t offer the same kind of value it did late last year. Today, the forward-looking P/E ratio is 34. However, given the company’s momentum, I think this valuation is reasonable.
A digital transformation specialist
Another technology stock I like right now is Kainos (LSE: KNOS). It’s a leading provider of digital transformation services. It helps its customers – which include large-scale businesses such as Netflix and Diageo as well as the UK government – with solutions in relation to cloud computing, artificial intelligence, cybersecurity, and data analytics.
Recent half-year results here were very strong. For the six months ended 30 September, revenue was up 23%, while profit before tax jumped 100%. The backlog was also up 38%. Meanwhile, the interim dividend was raised 83%, which suggests management is very confident about the future.
Like Cerillion, this tech stock is expensive. Currently, the forward-looking P/E ratio is about 35. This adds risk. However, given that digital transformation is one of the biggest priorities for businesses globally today, I think the risk/reward skew is favourable.
A remote work play
The third tech stock I like is Gamma Communications (LSE: GAMA). It’s a leading provider of ‘unified communication’ solutions. These enable companies’ employees to work remotely, with little constraint in terms of access to resources and communications, both internally and externally.
Gamma’s half-year results, for the six months ended 30 June 2020, were very impressive. Revenue was up 12%, while adjusted earnings per share lifted 22% to 23.5p. Last week, the company advised its full-year adjusted earnings per share are anticipated to be slightly ahead of market expectations.
Gamma shares had a good run between March and August last year but, since then, they’ve paused for a consolidation. I think buying the stock now could be a good move. The forward-looking P/E ratio is currently just under 30, which I think’s very reasonable. After all, remote working is a trend that looks as if it’s here to stay.
Edward Sheldon owns shares in Gamma Communications and Diageo. The Motley Fool UK owns shares of and has recommended Netflix. The Motley Fool UK has recommended Diageo, Gamma Communications, and Kainos. 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.