Tech share Data#3 Limited surges on profit update, time to buy?

The share price of business technology solutions company Data#3 Limited (ASX: DTL) has jumped 10% to a new 52-week high of $1.27 in morning trade after it released a full year profit update to the market.

The company advised that FY 2016 net profit after tax is expected to be between $13 million and $13.5 million, a huge increase of approximately 25% on the previous year’s $10.6 million.

Management has pointed to a strong performance from its core business and solid growth in services as being the catalysts to this impressive pre-audit estimate.

It is fair to say that Data#3 has had a difficult few years with declining profits. But a change of direction to capture more revenue from the cloud and services sector appears to have been a successful move. Although profits are still not as high as they were in FY 2011, they are certainly heading in the right direction.

If the company delivers on these expectations the shares will trade at under 15x earnings even after the strong gains today. This puts them at significant discount to sector peers such as Melbourne IT Limited (ASX: MLB) and SMS Management & Technology Limited (ASX: SMX).

With its turnaround working, zero debt on its balance sheet, and a big fully franked dividend, Data#3 could prove to be a great long-term investment in my opinion. Data#3 will announce its audited full year results and its final dividend on August 22.

Lastly, if you have $10k to invest in Data#3 or elsewhere I would highly recommend you have a read of this first. This man turned a $10k investment into over $8 million. It's definitely worth a read if you get chance today.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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