Technology companies are often subject to sky-high valuations. While sometimes justified given their growth potential, often they prove to have included an overly optimistic view of their future prospects. With the FTSE 100 hitting 7,500 points for the first time ever, many technology companies now appear to offer relatively narrow margins of safety. However, here are two smaller technology stocks which could still be worth buying.
Improving performance
Reporting on Monday was cloud-based portfolio analysis and asset pricing specialist StatPro (LSE: SOG). It stated that trading in the first quarter of the current year has been in line with expectations. It has recorded impressive sales growth of StatPro Revolution and StatPro Seven, while the pipeline for the rest of the year remains solid.
The recent acquisition of UBS Delta could provide the business with a boost over the medium term. It may offer the company a stronger presence in portfolio analytics. Given the company’s strong track record in M&A activity (it has acquired 13 businesses in the last 17 years), the integration should progress relatively well.
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Looking ahead, StatPro is forecast to record a rise in its bottom line of 41% in the current year, followed by additional growth of 45% next year. This puts its shares on a price-to-earnings growth (PEG) ratio of just 0.4, which suggests upside potential is high.
Certainly, the asset management industry faces a number of threats to its future. For example, the attraction of passive investing, higher regulation and a low return environment. However, with a strong position within cloud-based services, StatPro seems to be a sound long-term buy at the present time.
Growth potential
Also offering the potential for relatively high returns within the technology sector is IDOX (LSE: IDOX). The information management solutions specialist is expected to record a rise in its bottom line of 12% in the current year, followed by further growth of 13% next year. This puts the company’s shares on a PEG ratio of 1.1, which suggests they could deliver further capital gains after their 14% rise since the start of the year.
Looking ahead, IDOX could also become a relatively attractive income stock over the medium term. It currently pays out only 25% of its profit as a dividend each year. This could easily rise significantly in future years, while also ensuring the business has sufficient capital for reinvestment. When combined with a rising bottom line, this could lead to a higher dividend in future.
In fact, in the next financial year IDOX is forecast to grow its shareholder payout by around 12%. This puts its shares on a forward dividend yield of 1.7%, which could increase further over the medium term. With inflation moving higher, IDOX could have a potent mix of income, value and growth appeal for the long run. As such, even though the FTSE 100 is at record levels, it could be worth buying.
