Companies that sell a new or improved technology may be able to grow at prodigious rates over time. These are the kinds of businesses where even a small investment may deliver massive returns to those prepared to take on the higher risk ascribed to smaller start-up technology businesses. Any such business that has a competitive advantage is particularly attractive, as this shields its growth potential from the threat of others who want a slice of its market share.
One technology stock with a competitive advantage that the market is slowly appreciating is Vocus Communications Limited (ASX: VOC). Vocus provides high performance and high speed internet connectivity services across Australia. The fibre-optic infrastructure of the future is its key growth driver and the competitive advantages comes from owning key infrastructure required to deliver its in-demand high speed internet services. At $4.76 it's selling for 31 times projected earnings, but given the outlook and a strong management team this looks a business with potential to run hard into the future.
Another hot tech stock is XERO FPO NZ (ASX: XRO), with its user-friendly cloud-based accounting software set to potentially deliver big returns to those who jump aboard now. Selling for $24.19 today, this may be a timely opportunity to buy into what could be the growth story of the next decade.
Another software-as-a-service business is GBST Holdings Limited (ASX: GBT), it provides software to the global asset management industry and selling for just 14.5 times projected earnings it looks decent value too. GBST's business model is based on a sticky client base and recurring revenues, it will likely be a big winner if more new client wins start to drop and its reputation grows.
The two hottest internet stocks on the ASX right now are probably property and car sales websites iProperty Group Ltd (ASX: IPP) and iCar Asia Ltd (ASX: ICQ), up 303% and 246% respectively over the past year. Both are online advertising businesses for buyers and sellers of properties and automobiles in Asian countries with large populations and massive markets. Both these stocks have run hard on expectations rather than fundamentals and investors would be advised to watch these stories from the sidelines given current valuations. iCar Asia is part owned by Australian growth story Carsales.com Limited (ASX: CRZ), another online advertising business with plenty of potential.
