Here’s why software company Covata Ltd soared 18.6%

Covata Ltd (ASX:CVT) has announced a partnership with an impressive global IT leader.

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While the ASX was a sea of red on Thursday with many stocks sinking and the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) falling a hefty 1.6% following the hammering of US stocks on Wall Street overnight there was one, little-known stock that well and truly defied the odds…

Covata Ltd (ASX: CVT) soared 18.6% to close at 51 cents. What’s more, during the Thursday’s trading session the share price touched a new all-time high of 60 cents.

Given the stock only began trading on the ASX in November at around 20 cents per share it’s a phenomenal return for early investors in a short space of time.

Why the jump?

Thursday’s gains were thanks to the release of an announcement that Covata had signed a 10-year global license agreement (with a minimum 4-year term) with IT giant Cisco. According to the release, the agreement covers the Covata platform and related products, with a focus on delivering this technology to Cisco clients.

What does Covata actually do?

Covata offers customers what it describes as “true ownership and control over your data in the cloud and over mobile services.” In other words, Covata’s software solutions provide customers with a secure level of data protection and management.

What can investors expect next?

Given the growing threat companies face from hacking and data breaches, coupled with the increased reliance of their operations on ‘the cloud’, demand for products such as Covata’s offering look set to grow significantly.

With the company having already signing contracts with Deutsche Telekom and Macquarie Telecom Group Ltd. (ASX: MAQ) the latest Cisco agreement adds a further important strategic relationship to the group expansion plans.

While no figures were provided in the announcement, it’s easy to envisage that the global opportunity for Covata’s software is large. With a current market capitalisation of around $180 million, the stock is hardly a minnow considering it is yet to record a profit however as other software firms with large market penetration potential such as XERO FPO NZ (ASX: XRO) have shown, the market can quickly re-rate a stock as it hits milestones.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned.  The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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