As the economy opens up, investors are spoilt for choice when buying high-potential shares. Some of these include companies that performed well even during the lockdowns and have a bright future ahead too.
One of them is the FTSE 250 technology stock Kainos (LSE: KNOS). The provider of software solutions released a stellar set of results earlier this week.
Kainos is growing fast
For the full year ending March 31, the company reported a 31% increase in revenue and if that is not big enough, its pre-tax profit increased by 117%.
And this is not a one-off increase either. The company has seen consistent growth in both revenue and profits over the past few years.
Positive future
While this is indeed a good place to start, I also like the fact that its future looks promising. But first let us look at the company itself. It has two business segments.
The first is called Digital Services, which contributes to almost 70% of its revenues. Under this umbrella, Kainos offers services like data analytics and cloud solutions, which have grown by 24% on average over the past five years. This is healthy growth in itself, and going by forecasts, there is much promise here too.
The second is known as Workday Practice, which provides software support across business functions like finance and human resources. It has shown impressive growth of 49% on average under its project consulting and management segment, while its proprietary software tool has grown by 51% over the same time. I think these bode well at a time when the economy is expected to take off.
Safe stock
Its focus on public and healthcare sectors is also encouraging, because they are less likely to be impacted during downturns. In an article I wrote on industrial software provider AVEVA yesterday, I had flagged its dependence on clients in cyclical industries like mining and oil as a potential risk factor. Comparatively, Kainos is a safer play.
Kainos’s growth across geographies also makes it relatively safe if there is a slowdown in the UK at any point. While the UK and Ireland still account for 74% of revenues, its North American business is growing fast. In the latest financial year it grew by 77%.
Consistently rising share price
An assessment of the company would not be complete without a look into its share price trends. Even a financially healthy company, in my view, can be an iffy bet if its credentials do not reflect in its share price performance over time.
That is not a challenge with Kainos, though. In the past year, its share price has risen by 78%. And in the past two years, the share price is up by 140%. I reckon that it can rise more, based on its recent performance.
The stumbling block
Credit risk is one potential downer for the company, however. In its results statement, it says that “the impact of Covid-19 continues to be a significant consideration in the calculation of the lifetime expected credit loss”. I would watch out for it.
My takeaway for the FTSE 250 stock
However, in the overall scheme of things, I think Kainos’s potential outweighs the risk. It is a buy for me.
