The pandemic has created a semi-permanent shift in the average working lifestyle. Due to safety concerns, many employees are now working from home. Yes, the announcement of multiple vaccines means the pandemic may be over soon. However, an estimated 25%-30% of people will continue working from home even after Covid-19 becomes a chapter in the history books.

That actually makes a lot of sense from a business point of view. Many employees can do their job as effectively from home. In that case, there’s no need to spend money renting costly offices.

Video conferencing tech stocks in the pandemic

Tech stocks like Zoom Video Communications have flourished under current market conditions. The sudden need for remote working solutions resulted in a mass migration to such platforms, allowing the company to grow extra fast.

Zoom’s share price has risen by over 440% since the start of the year. Needless to say, it has been an excellent year for existing shareholders. But with such rapid growth, comes an absurdly high valuation. The P/E ratio is currently over 300. To put that in perspective, the historical market average P/E ratio is around 15.

But Zoom isn’t the only player in the space, and that’s where the cheap shares of LoopUp Group (LSE:LOOP) come in.

Much like Zoom, LoopUp offers a video conferencing platform to businesses. Unlike Zoom though, the firm is specifically targeting the professional services (PS) market. This includes the legal, financial, and client-led business sectors. The market niche is undoubtedly smaller than the overall mass market. But, as a result, it’s facing far fewer direct competitors.

What’s going on with the share price?

I’ve previously discussed how I think LoopUp can succeed in this market space. Since that article, the shares haven’t done very well, falling by nearly 55%.

The catalyst behind this decline is a trading update in which earnings guidance was lowered for the year. As previously mentioned, the business primarily focuses on the PS market. But it does still offer some legacy products for the mass market, despite transitioning out of that segment.

Covid-19 boosted the demand for these legacy products. Unfortunately, they’re very similar to what Zoom offers at a lower price. Thus, in an attempt to retain customers, LoopUp had to lower its fees, and with it, earnings expectations declined.

Are they cheap shares or a value trap?

The legacy product problem is a little concerning. It demonstrates the lack of pricing power the firm has over the mass market. Furthermore, I think this also may have further contributed to the rapid decline in the share price.

However, don’t forget that the core focus of LoopUp is not the mass consumer market. A closer look at the results showed some rather superb performances elsewhere. Total PS-based minute volumes were up 43%, with a 56% increase in average minutes-per-user.

Overall, the tech stock is expecting 18% growth in total revenue and 134% in underlying profits for 2020. Based on these figures, the shares look incredibly cheap to me at a forecast P/E ratio of around 3.

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Today’s slump was triggered by a profit warning from the firm, which says competition is getting tougher outside its core professional services marketplace. In this piece I’ll explain what’s happening and what it could mean for shareholders.

Difficult market conditions

LoopUp provides cloud-based conference calling and telephony solutions. The firm’s selling point is that it provides an easy-to-use service with high levels of security, call quality and reliability.

Unlike rivals such as Zoom and Skype, which have targeted the mass market, LoopUp’s focus is on professional services companies — especially law firms. Even before the pandemic, LoopUp was shifting its focus away from more non-professional services customers.

Unfortunately, the pandemic has accelerated this shift. Non-professional services clients are calling less and often making cheaper calls. They may also be migrating to cheaper services such as Zoom.

Even the firm’s core professional services clients are enjoying cheaper calling rates. LoopUp says that per-minute costs have fallen by 24% this year, due to a shift from pay-as-you-go to subscription pricing. International call volumes have also fallen.

As a result of these changing usage patterns, LoopUp expects revenue and earnings to be lower than previously expected this year.

Take a step back: LoopUp is still growing

It’s worth remembering that it’s been a good year for this business. Even after today’s fall, LoopUp’s share price is still 50% higher than it was one year ago. The business is still growing quite strongly too.

Today’s guidance from the company indicates that 2020 revenue should be at least £50m. That’s an increase of 18% on 2019.

EBITDA (earnings before various deductions) is now expected to rise by 134% to £15m in 2020.

After today’s share price fall, this business is valued at roughly one times forecast sales. For a profitable, growing business, that might not be expensive. To put this in context, US-listed Zoom is valued at 38 times sales. That is expensive, in my view.

LoopUp share price: what happens next?

2020 has been a good year for companies that provide software that’s essential for working at home.

But with vaccines on the horizon and at least a partial return to the office likely in 2021, the challenge for companies such as LoopUp will be to keep hold of the customers they’ve gained this year.

Ahead of today, broker forecasts suggested that LoopUp’s revenue would be broadly flat in 2021, but that profits would fall significantly. I expect these forecasts to be trimmed after today’s news. But LoopUp says it’s still winning new business, including three recent wins with global top-100 law firms.

LoopUp’s pipeline of contract opportunities has an annualised contract value of £16m. Even if only some of these opportunities convert to orders, they could add significantly to the firm’s sales.

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An opportunity to beat Zoom?

LoopUp Group (LSE:LOOP) also provides a video conferencing platform. There is a vast array of competitors within the market space. However, the firm has differentiated itself by targeting the professional services market (PSM). This includes legal, financial, and client-led business sectors.

Clients in the PSM sector have distinct needs and priorities compared to the general video conferencing market that Zoom focuses on. Most conference calls are with external guests who may have little patience for downloading and learning new software.

LoopUp’s platform is designed specifically to suit the needs of businesses and their external guests. Members can create and join calls by using a phone and an Internet browser – no software download needed.

How does the growth stock work? 

The business model is quite simple. Customers can either subscribe to a monthly package or elect for a pay-as-you-go option. The platform seamlessly integrates with Microsoft Outlook, allowing the host to schedule meetings and create groups. 

This approach may appear simple, but so far, LoopUp has been the only firm to execute it on a large scale successfully. With support for up to 150 people in a single call – and no loss in quality – the company has grown a client list of over 5,000 companies including over 20% of the world’s top-100 private equity firms.

The financials 

Before Covid-19, active users had been increasing by double digits each year like clockwork. Once lockdown came into effect across Europe, daily active users exploded to 75m – a 70% increase in just seven weeks.

In the short term, these figures are obviously non-sustainable. However, it has exposed many new customers to the platform. With some companies intending to retain their work-from-home policies to reduce fixed costs, it’s reasonable to assume that LoopUp will keep many new users.

This assumption is further supported by the firm’s net revenue retention (NRR) rate of 114%. As a reminder, NRR is a measure of how much of the revenue stream is retained after a purchase. A value of 114% means that customers who have previously joined the platform are now spending 14% more than when they first started. An excellent sign of quality and pricing power.

The bottom line — Zoom vs LoopUp

LoopUp is a much smaller business than Zoom. However, it has found a niche segment of the market — expected to be worth $10bn by 2024 — that remains mostly untapped. With a market cap of just over £103m and predicted earnings of £18.4m for 2020, the stock is currently priced at a forecasted price-to-earnings ratio of 5.6. When compared to Zoom’s P/E of over 500, the growth stock looks exceptionally cheap in my eyes.

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Since the age at which the State Pension is paid is set to rise, and it amounts to little over £8,500 per year, FTSE 100 shares could be a sound means of boosting an individual’s retirement savings. With that in mind, this large-cap share could be worth buying for the long run.

Growth potential

The stock in question is online takeaway ordering service Just Eat (LSE: JE). The company’s popularity has continued to grow as the market for the online ordering of restaurant deliveries has increased. Improved technology is one reason for this, with mobile ordering becoming simpler. And with the company investing heavily in its technology, further improvements in this area could be ahead.

While the prospects for consumers in the UK may be slightly uncertain, Just Eat’s international focus means that its business model is diverse. This could help it to overcome a period of weak consumer confidence, which is currently present in the UK.

Of course, takeaway ordering services may be more resilient than many investors realise. Consumers looking to save money on discretionary expenses may trade down from visiting a restaurant to a takeaway, and this could further boost the company’s performance during an economic downturn.

With Just Eat’s shares trading on a price-to-earnings growth (PEG) ratio of 1.3, they seem to offer a wide margin of safety. As such, now could be the right time to buy them for the long term.

Improving performance

Also offering capital growth potential over the coming years is premium remote meetings company LoopUp (LSE: LOOP). The business released interim results on Wednesday which showed that revenue increased by 39% to £12m during the first six months of its financial year. Adjusted operating profit was up 79% to £0.9m, with the financial performance benefitting from the acquisition of MeetingZone for £61.4m in June.

The outlook for the business remains upbeat. It’s seeing strong demand for its product from a target market that is largely made up of mid-to-large enterprises and professional services firms. The group’s entry into the Australian market has so far been successful, while overall net growth in the company’s long-term, established customer base suggests that its future prospects are bright.

With LoopUp forecast to record a rise in earnings of 114% in the current year, and the stock trading on a PEG ratio of just 0.3, the company appears to offer growth at a reasonable price. Therefore, while it has the potential to be relatively volatile, its share price could deliver high returns in the long run.

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The storage, interpretation and sale of data is big business, and the market is growing every day. Estimates vary, but according to the International Institute for Analytics, the market for data analytics is currently believed to be worth more than $200bn. 

In trying to grab share, Wandisco is holding its own against the sector’s biggest players. Today the company announced that it has achieved Co-Sell status through the Microsoft One Commercial Partner Program. What this means is that the firm’s product, the WANdisco Fusion Live Data Platform, can now be sold as a packaged offering with Microsoft Azure, the tech giant’s enterprise-grade cloud computing platform.

Azure has been designed as cloud computing platform for big businesses to work with, and Wandisco’s Live Data platform, which enables companies to put all their data to work together at any scale, looks to be a great addition to the offering.

I believe that this is something of a landmark deal for Wandisco. Receiving Microsoft’s stamp of approval shows that the firm’s offering is the real deal and opens up a tremendous market opportunity. Earlier this month the company also announced a partnership with Alibaba Cloud solutions, opening up the Chinese market as well.

Growth is exploding 

Even though Wandisco is a fraction of the size of these companies, the partnerships (with two of the most prominent data names in the world) tell me that the demand for its services is high, which is already showing through in results.

Bookings for fiscal 2017 grew 45% year-on-year to $22.5m, and adjusted pre-tax losses narrowed to $10m from $18.2m. And while City analysts are not expecting the firm to report a net profit for the next two years, on a cash flow basis, the company is making progress. Cash burn fell to $5.3m for the year to the end of December, and the group had $27.4m of cash in the bank at the end of 2017, implying that it has headroom of at least five years (at the current rate of cash burn) to become profitable. The sky really is the limit for Wandisco. 

Too cheap for the growth 

LoopUp (LSE: LOOP) is not a data business in the same way as Wandisco, but it is active in the same business-focused tech market.

The firm offers customers a high-tech video conferencing solution, that’s designed to get rid of all the usual annoying problems that come with video conferencing such as background noise. 

Demand for the firm’s services is exploding with revenue growing 36% for 2017 and earnings per share rising 722% to 4.4p thanks to economies of scale. City analysts are expecting earnings per share growth of 34% for 2018 and 115% for 2019, meaning that the shares are currently trading at a 2019 P/E of 27.3. This low multiple, in my view, looks too cheap for a tech company growing earnings at a compound annual growth rate of 69% per annum (based on City forecasts for the next two years). 

What’s more, LoopUp is generating cash, so as the business grows, I wouldn’t rule out the introduction of a dividend.

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In less than two months the oil leviathan has seen its market value collapse from January’s seven-year tops above 530p per share, its descent reflecting the recent downturn in crude values. And in the current climate I believe BP has much, much further to fall.

But before I carry on about the FTSE 100 driller, I’d like to look at a little-known share I would be happy to splash the cash on today, LoopUp Group (LSE: LOOP).

Video star

The video conferencing specialist’s shares were back on the charge in Tuesday trading following the release of knockout full-year numbers.

It was last dealing 9% on the day after declaring that revenues (excluding the discontinued BT technology licensing business) boomed 36% in 2017, to £17.5m, a result that helped it swing to an operating profit of £700,000 from a loss of £300,000 a year earlier.

LoopUp commented: “We continue to see strong demand for our product from our target market of mid-to-large enterprise and professional services firms.” And lauding its bright outlook, it added: “Our highly differentiated market positioning and competitive strategy, combined with our efficient new business unit economics, make for an exciting outlook and we remain confident in our ability to deliver further growth.”

In the period, LoopUp witnessed “particularly strong revenue growth in the US,” and it now generates just over half of revenues Stateside. Some 40% of revenues are sourced from the UK, 7% from mainland Europe and 2% from the rest of the world, a spread that gives earnings that little bit more protection.

LoopUp is expected to report earnings growth of 39% in 2018 and 108% next year, but today’s broker-beating numbers are likely to lead to significant upgrades to these numbers. And I reckon further positive revisions can be expected given the pace at which sales are taking off.

These factors mean that I reckon LoopUp is a terrific buy today, despite its elevated forward P/E ratio of 54.5 times.

US production climbs

BP trades on a much more reasonable prospective P/E ratio of 15.1 times. However, I would be reluctant to buy into the business even at current price levels.

Oil values may have given up some ground in recent weeks but some are arguing that they are still looking overbought at current levels around $65 per barrel. It is difficult to argue against this in my opinion as producers in the States continue to ramp up output. Latest Baker Hughes data showed the number of oil rigs plugged into US soil barge through the 800 marker last week for the first time since the spring 2015.

On the plus side, the outlook for energy demand, and in particular from emerging economies, looks pretty strong at the moment. But of course, supply constraints like those by OPEC and Russia are needed to rebalance the market and keep prices supported, and with the US and other countries investing heavily in fossil fuels, the oil market is likely to remain oversupplied for some time yet.

Brokers may be predicting earnings growth of 153% and 7% at BP in 2018 and 2019 respectively. These figures look a little fragile though, and I believe risk-averse investors should give the company a wide berth.

The post I’d happily sell BP plc to buy this secret growth star appeared first on The Motley Fool UK.

The company, which provides remote meeting services, advised that revenues bulged 44% during the six months ending June, to £8.65m. As a result, EBITDA increased 81% to £1.61m.

Chief executive Steve Flavell said: “We are very pleased to report continued strong performance in our 2017 interim results. LoopUp is benefiting from significant momentum and the 44% growth in LoopUp revenue exceeds FY2016 and FY2015 growth rates both as reported on a pound-sterling basis and on a constant currency basis.” Its revenues at stable exchange rates rose 37.2% last year versus 31% in both 2016 and 2015.

“Like-for-like gross margins have improved, the business has developed its profitability at both EBITDA and operating levels and our metrics for new business acquisition efficiency and business retention remain strong,” Flavell added.

The meetings mammoth witnessed particularly strong demand growth from across the Atlantic, with sales in the US now accounting for 52% of the group total. The UK is responsible for 36% of aggregated turnover, while LoopUp sources 10% of sales from mainland Europe and 2% from its other global territories.

And the business has kept the momentum going since the period end, Flavell advising: “The second half of 2017 has started encouragingly with some major new customer wins set to roll out, and we remain confident for the full financial year as well as in our ability to deliver growth beyond that.

It attributes its continued positive performance and outlook to its “highly differentiated product strategy in the large £5bn market for outsourced remote meetings services,” he added.

Earnings set to explode

The City’s army of analysts also believe that the future looks extremely perky for the communications play, and have pencilled in earnings expansion of 167% and 332% in 2017 and 2018 respectively.

A subsequent forward P/E ratio of 142 times may look expensive on paper. But I would argue that a PEG reading of 0.9, below the bargain-benchmark of 1, suggests that LoopUp is very attractively priced relative to its growth outlook.

Today’s surge to new record tops means that the London firm has seen its share price swell almost 90% since the start of the year. And I expect the share price to continue marching higher as sales march skywards, and particularly in North America.

Record maker

Gooch & Housego (LSE: GHH) is another London-listed stock expected to deliver stunning earnings growth right now and in the future.

In the year to September, the number crunchers have chalked in bottom line expansion of 10%. And an extra 16% increase is expected next year.

This optimism is not a great surprise given that revenues continue to boom. Robust demand from the telecoms, precision inspection equipment and microelectronic manufacturing segments drove revenues 36% higher during October-March, to £52.2m. And the company is throwing huge sums at product development and M&A to keep turnover on an upward slant.

Whilst Gooch & Housego may boast an elevated earnings multiple of 23.8 times, I reckon the company’s encouraging sales momentum (its order book stood at a record £66.6m as of March) warrants such a premium rating.

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With this in mind, I believe Koovs (LSE: KOOV) and LoopUp Group (LSE: LOOP) may be best avoided.

The Indian ASOS?

When a company grows revenue by 151%, as Koovs did last year, I pay attention. It has been described as the “ASOS of India,” but I believe its business model is a far cry from the profitable UK venture.

The company registered £4m in sales in the six months to 30th September 2016. If the business model was sound, you’d expect operating profits to move closer to break-even as revenues explode, but not so at Koovs. The company made a £9.1m loss before tax in the period, which is more than double sales! ASOS’ business model was far more profitable when making similar revenues; in 2002, ASOS lost only £1.7m on revenues of £4.1m and hit break-even with £7m revenues the very next year, while Koovs’ losses keep getting bigger. 

At last count, Koovs had around £20m in cash, but its operations burned through £12m in the first six months of the year indicating its war chest may not last long. The company could be forced to raise more cash within the next year or so, which could dilute shareholders.

Considering this massive and increasing rate of cash-burn, I believe the £80m market cap is far too high. I still believe Koovs could eventually go bankrupt, or dilute shareholders so much as to render returns sub-par. Therefore, I’ll be avoiding the shares.

LoopUp Group

LoopUp Group offers supposedly innovative conference calls software. A user can quickly organise a meeting by inviting contacts directly from Microsoft Outlook. The program also facilitates easier recording of calls and eliminates the need for dialling in.

There are aspects I like about the company, including impressive momentum in revenue growth and a list of over 1,850 customers that include prestigious firms such as Kleinwort Benson and National Geographic.

Revenues grew 26% to £10.1m last year and the company has just moved into profit. It does capitalise some software development costs, however, which I believe could be flattering results a little by moving some expenses off the income statement and onto the cash-flow statement. 

For example, the company capitalised £1.74m in developmental costs last year, but amortisation on the income statement came in lower at £1.25m. I don’t believe that tech companies should capitalise software development costs, but in LoopUp’s case I don’t believe this to be a serious problem, although it may be worth keeping this in mind when performing analysis.

The biggest potential problem facing Loopup Group is that its products don’t seem all that unique when compared to competitors. I would not be surprised to see a tech giant launching competing software that blows LoopUp out of the water. Amazon Chime, for example, seems to offer similar and competing services.

LoopUp’s market cap is £59m, which I believe to be too high for a company that is barely break-even and operating in a highly competitive field. If the company gets out-innovated by a tech giant with more firepower, I could personally imagine it ending up virtually worthless.

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