The UK stock market isn’t known for its tech stocks. We don’t have mega-cap technology giants such as Apple and Amazon.
However, in the mid-cap and small-cap areas of the UK market, there are actually plenty of exciting tech stocks. And many of these companies are growing at a phenomenal pace.
Here, I’m going to highlight two under-the-radar UK tech stocks I like the look of right now. I’d be happy to buy both for my portfolio today.
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A tech stock for the work-from-home trend
One of my preferred plays in the UK technology sector is Gamma Communications (LSE: GAMA). It’s a leading provider of unified communication solutions. This is a company I’ve been tracking for a number of years now and it has gone from strength to strength.
Its share price has done well too. Over the last five years, it’s risen from 400p to 1,650p, although past performance isn’t indicative of future performance, of course.
The reason I’m bullish on Gamma is that it’s benefitting from the work-from-home trend. Its communication solutions enable employees to work remotely, with little constraint in terms of access to resources and communications.
I believe remote working is a trend that’s here to stay. Over the last year or so, attitudes towards working from home have changed dramatically. Not only has it become clear that technology enables us to work remotely without disruption, but we have also discovered that this working model offers advantages for both employers and employees. Gartner believes that, in the near future, over 40% of employees are likely to work from home at least some of the time.
There are a few risks here, of course. If I’m wrong about remote working, and everyone ends up going back into the office post-Covid-19, Gamma’s growth could slow. The stock’s relatively high P/E ratio of 30 adds some valuation risk too.
Overall, however, I believe the risk/reward proposition here is attractive.
A UK cybersecurity stock
Another UK tech stock I like right now is Avast (LSE: AVST). It’s one of the world’s largest cybersecurity companies, with over 435m users globally.
One reason I see the appeal in Avast is that demand for cybersecurity solutions is growing at a tremendous rate. Prior to Covid-19, cybercrime was already a huge problem globally. However, with many people now working from home, it has become even more of a pressing issue. Experts believe the global cybersecurity market could grow to $230bn this year. That represents growth of more than 25% from 2019.
Avast’s recent performance has been impressive. Between FY2016 and FY2019, revenue climbed from $341m to $871m while net profit expanded from $25m to $249m. City analysts have pencilled in revenue and net profit of $952m and $372m for this financial year.
One risk that concerns me here is the dynamic nature of the cybersecurity industry – threats are continually evolving. In other areas of technology, companies can take charge of their own destiny by improving their product offerings. However, in this industry, it’s the external threats themselves that dictate the roadmap. This means there’s an increased degree of stock-specific risk.
Overall though, I think this tech stock has considerable appeal. Its forward-looking P/E ratio of 19 strikes me as quite reasonable. I’d be happy to buy AVST for my portfolio today.
