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Why Technology One Limited shares keep crushing the market

Shares in cloud services and software business Technology One Limited (ASX: TNE) have lifted more than 16% over the past year, compared to a negative 16% return for the S&P/ASX 200 (Index: ^AJXO) (ASX: XJO).

This goes to show the benefits of being invested in fast-growing technology businesses delivering double-digit revenue and profit growth year on year.

The company is Australia’s largest enterprise software company with more than 1,000 corporations and government departments as clients and recently posted a full year net profit of $35.8 million on revenues of $218.7 million.

Technology One has also been investing heavily in its Cloud platforms. The investments have proven a short-term headwind for margins, although management recently commented that it expects the growth of cloud services to lift margins over the long term.

The company’s core business is the provision of enterprise software services and it expects FY2016 will bring another strong year of growth due to increased demand from the public sector in particular. Much of the growth should also come from new clients, its cloud services business, the cross selling of products, and improvement in its UK operations.

Technology shares clearly have strong tailwinds thanks to the growth of the digital economy and cloud services in particular, with other software operators performing strongly in the sector including Hansen Technologies Limited (ASX: HSN) and micro-cap Bulletproof Group Ltd (ASX: BPF).

Overall, the digital economy and technology shares look like a sector for smart investors to be all over in the years ahead.

However, for an intelligently balanced portfolio, you need some high dividend payers too….

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned. The Motley Fool Australia owns shares of Hansen Technologies.

You can find Tom on Twitter @tommyr345

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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