Tech stocks on the rise

One of the fastest growing areas of technology is cloud computing. Data shows the cloud computing market is expected to grow at a annual growth rate of 16.3% between 2021 and 2026. K3 creates and sells IT-related products and software, predominantly using cloud computing tech, to improve efficiency in business operations.

As I write, shares in K3 are trading for 167p per share. At this time last year, the shares were trading for 119p, which is a 40% increase. 2021 was a good year for the K3 share price overall. The share price increased by nearly 70% from January 2021 to 2022. Many tech stocks have benefited from the pandemic-related need for tech and have seen share prices and performance increase steadily. 

Why I like K3 shares

K3’s performance of late has been consistent and it seems to have turned its fortunes around from a few years ago when it recorded losses and there were profit warnings. In a positive trading update provided in December for the second half of the financial year ended 30 November 2021, K3 was bullish about full-year results as well. It said performance for H2 was in line with expectations and mentioned lots of key new client wins which would boost performance.

One of the other reasons I like K3 is its current healthy balance sheet. In the latest update, it confirmed net cash was £9m. This was more than double the level six months prior and even more so since the same time last year when the firm was in the red. When a firm is able to clear debt and accumulate cash, I see it as a positive. Many tech stocks prioritise re-investing in new tech and products to stay ahead of the curve. A healthy balance sheet enables this.

Finally, insiders own shares of K3. I personally am a big fan of insiders owning shares in a firm. Legendary investor Peter Lynch once said: “Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise”.

Risks and my verdict

K3 seems to have some momentum right now but issues could arise affecting its progress and performance. It has previously hit a sticky patch and failed to win major deals it expected to and recorded losses. There is the real risk this could occur once more. In addition to this, K3 is not exactly a household name. What I mean here is that despite its impressive client list and product stack, larger, more established competition in the tech world could beat it to the punch in terms of winning customers and producing cutting edge technology too.

Right now I really like K3 shares and would add some to my portfolio. It would be easy to buy shares in a big tech stock but sometimes these small cap gems can really take off over the longer term. K3 could be one such stock, especially with the rise in demand for cloud computing solutions in recent times.

The post Here is 1 burgeoning tech stock you might not have heard of! appeared first on The Motley Fool UK.

With that in mind, here are two shares capable of delivering improved financial performance that may translate into a rising share price.

Improving outlook

Reporting on Tuesday was business software, cloud solutions and managed services specialist K3 (LSE: KBT). The company announced that trading over the remainder of the financial period to 30 November 2017 has been in line with management expectations. It has signed numerous new customers in recent months, with there being encouraging growth in the Global Accounts division.

In addition, the company has also completed its operational resource review. It has decided to integrate the Microsoft Dynamics business into a single unit. This will incur additional costs in the short run, but in the long term could mean the business is more streamlined and efficient.

Looking ahead, K3 is forecast to post another loss in the current year. However, next year it is expected to deliver a black bottom line. Although it trades on a price-to-earnings (P/E) ratio of 21 using next year’s forecast earnings figure, growth potential over the medium term could be high. As such, after what may prove to be two years of losses, now could be the right time to buy a slice of the business for the long term.

Mixed performance

Also struggling at the present time within the telecoms, media and technology sector is ITV (LSE: ITV). The company is a highly cyclical business and is therefore expected to report a decline in earnings of 9% in the current year. While the UK’s economic performance has held up reasonably well despite the EU referendum decision and the uncertainty it has created, GDP growth and general business confidence has declined. As such, a 9% fall in the company’s profit is not particularly surprising.

Next year though, ITV is expected to return to positive profit growth. It trades on a P/E ratio of just 10.6, which indicates that it has a wide margin of safety at the present time. Furthermore, the company has a dividend yield of 5.6%, which may attract new investors to the stock after inflation has now risen to 3.1%. And with dividends being covered 1.7 times by profit, they appear to be highly sustainable at their current level.

Looking ahead, ITV may experience further challenges if Brexit proves to be a negative for the UK economy. However, investors appear to have priced-in further difficulties for the company and for its sector, judging by current valuations. As such, now could be the right time to buy the stock, with its capital growth and income return potential being high.

The post 2 turnaround shares I’d buy before Christmas appeared first on The Motley Fool UK.

Hummingbird has been developing its Yanfolila gold project in Mali, and it’s on schedule and within budget with first gold pour expected by the end of 2017. And in Wednesday’s first-half results announcement, there were plenty of indications that the firm should make it through to profitability just fine.

Following the acquisition of 5% of the Yanfolila project from a minor firm that held an interest, Hummingbird now owns 80% of it — and the Mali government has upped its stake to 20% for an investment of $11m. In addition, there was approximately $60m in cash on the books at 1 September, though there’s a fair bit of debt too.

Turnaround

We’ve had years of losses building up to this expected first year of gold production, and there’s a further loss on the cards for the full year this year — a modest 1.36p loss per share is forecast. 

But that should swing around in 2018, with analysts predicting EPS of around 3.2p per share . That would put the 32.25p shares on a P/E multiple of only around 7.8 — barely more than half the FTSE 100‘s long-term average.

While we’re in an economically uncertain phase I don’t see much risk of a gold price fall. But politics could be a problem — the military coups in Mali in 2012 suggest anything could happen in the coming years.

But gold is gold, and Hummingbird could be a good way to get in on it.

Road to recovery?

K3 Business Technology Group (LSE: KBT) is a stock that I think could be set for a turnaround of a very different nature. The company provides end-to-end business software systems for the retail, manufacturing and distribution sectors, and its shares were climbing nicely — they reached more than 350p in late 2016.

But a couple of profit warnings — the most recent on 16 May this year — sent the price nosediving, and we’re looking at just 159p as I write. The company failed to secure some major deals it was expecting, and May’s announcement told us that results would be “significantly below current market expectations.”

We had those results Wednesday. They revealed an adjusted pre-tax loss for the 12 months to 30 June of £2.63m (from an adjusted profit of £8.8m a year previously) and an adjusted loss per share of 7.4p (against previous EPS of 23.5p). Net debt stood at £6m.

Recovery prospects

But I’m seeing encouraging hope for recovery, with the company already changing its strategy “for a return to profitability and sustainable growth.” That includes focusing on the SME market and its own products, and looking for recurring income. There’s an ongoing review of the firm’s resources too, and reorganisation has produced annualised savings of around £3.7m already.

The firm’s year-end is changing to November because of its strong seasonal trading, and analysts are actually expecting to see EPS of 18p, which would give us a P/E of around nine — but a big fall pencilled in for 2018 would drop EPS to only around 8p and drive the P/E up to 20.

But K3’s rapid response makes me think that’s too pessimistic.

The post 2 top turnaround stocks that could make you a millionaire appeared first on The Motley Fool UK.

One-day falls like this can be a shocking event for a firm’s shareholders, but they also raise the possibility of increased value, particularly if it later proves that a share-price correction like this is overdone.

Is K3 Business Technology a falling knife to catch, or should we steer clear of the firm now it has run into operational problems?

Deal slippage

The software company provides end-to-end business technology solutions to the retail, manufacturing and distribution sectors. Back in March with the interim results statement, the directors reported some operational progress but warned that the results had suffered from deal slippage and overhead investment.

In today’s update, the directors are blunt, saying they now believe that the results for the year to 30 June 2017 will be “significantly below current market expectations.” That’s the opposite of what I want to hear from the firms I’ve invested in, but let’s dig deeper.

Although some major deals closed, the directors say, certain large enterprise contracts have not been secured as they expected. What we don’t know, and what the update doesn’t tell us, is why.

The wording in the update suggests that the work has been lost, perhaps in a competitive tendering situation or for some other reason, so I’m not counting on those contracts coming in during a later period.

Refocusing strategy

Yet there are reasons to be optimistic from this new share-price level. The update also reveals that operations elsewhere in the business are showing progress and decent cash flows. What the company describes as ‘pilot customers’ have been secured for the firm’s new cloud-based modular technologies, which the directors predict “will generate opportunities for both new and existing customers.”

However, there seems no doubt that this outcome is acting as a wake-up call for the firm and the directors tell us they’ve started a review of resources with the aim of refocusing the growth strategy around the firm’s cash-generating business units and the large installed customer base. 

To me, that sounds encouraging. Restructuring, change, and an overhaul and re-examination of strategy can all be positives within a business leading to new growth, and that could happen with K3 Business Technology Group.

Awaiting full-year figures

It’s hard to value the firm when we don’t know what full-year earnings will be, but as a reference, with a share price of 151p, the historical price-to-earnings ratio is just over six for the year to June 2016. The forward P/E rating will be higher, but we’ll have to wait for full-year earnings figures or the directors’ estimates to find out how much higher.

Meanwhile, there’s no mention, yet, of cutting the dividend, and last year’s payout comes out at a historical yield of almost 1.2%. That sounds low, but last year’s earnings covered the payout more than 13 times. The directors are clearly focused on growing the company rather paying out all the cash inflow with the dividend.

Overall, I reckon K3 Business Technology has a good chance of turning itself around and going on to grow from here. It could be one to watch.

The post Is K3 Business Technology Group Plc a falling knife to catch after dropping 40% today? appeared first on The Motley Fool UK.