Is the Gentrack Group Ltd share price a buy?

The Gentrack Group Ltd (ASX: GTK) share price has grown by 84% over the past year to $6.29.

Gentrack provides ‘essential software for essential services.’ It provides the billing software, and other software, for energy companies as well as water companies and airport operators. Some of its main customers include the Newark Liberty International Airport in the US and Sydney Airport Holdings Ltd (ASX: SYD).

In FY17 Gentrack grew revenue by 42.6% and earnings per share (EPS) by 15.3%. This was a strong result for a company that is meant to be defensive. Technology stocks aren’t often seen as defensive, but Gentrack’s customer base is defensive utility companies and airports. All of those companies need software and it would take a lot of money and training to switch to a new provider, therefore the revenue is sticky.

Indeed, today Gentrack announced a new contract to supply the Velocity utility billing and customer management solution to E.ON, one of the world’s largest energy utility companies. The contract focuses on delivery of the Velocity software to support E.ON’s energy supply business in the UK and Romania.

Management said this contract signing continues Gentrack’s success in the UK energy sector, it now has over 38 energy utility customers in the region using its software. Gentrack said that this contract does not affect the outlook for the first half of FY18.

Foolish takeaway

This seems like a positive announcement from Gentrack and is just one win of many. Gentrack has done very well for shareholders over the past year, but I don’t think it’s going to hit $10 over the next 12 months. I think it could be a decent long-term buy at the current price, but I’d want to wait until either the share price or price/earnings ratio is better before buying.

Until Gentrack is cheaper I’m going to try to buy one of these hot stocks at a good price.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended GENTRACK FPO NZ. 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 Scott Phillips.

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