Technology businesses are some of the most exciting shares on the stock market. Technology businesses don’t usually have to make an ever-increasing amount of stuff to sell more things, they can leverage their existing research & development, equipment and software to grow the business and expand margins.
Investors probably need to be a bit more sceptical of technology businesses compared to other sectors, there are some ‘concept’ businesses that may not eventuate into anything.
That’s why I’d only want to invest in technology businesses that are already profitable and growing at a strong rate like these ones:
Speedcast International Limited (ASX: SDA)
Speedcast provides global network and satellite communications through managed network services in over 140 countries. It provides data for a variety of clients including cruise ships, oil rigs and other remote locations.
The company has been signing a number of new deals recently including with Royal Caribbean Cruises and the NBN.
The company recently announced that its FY17 revenue grew by 136% and earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 195%. There may be plenty more growth to come as demand for data keeps increasing.
Citadel Group Ltd (ASX: CGL)
Citadel is a technology and software company that provides enterprise content management solutions in health, national security, defence and other government sectors. It manages content and collaboration services for some of Australia’s leading education providers.
I like that Citadel provides a lot of services to the public sector because this should give a more defensive set of earnings for the business compared to a lot of other tech businesses. It is steadily increasing its client base and this is leading to bigger earnings. In its half-year report it revealed revenue growth of 12.7% and net profit after tax (NPAT) growth of 22.8%.
If it continues to make smart bolt-on acquisitions and expands its main business, Citadel could be a good small cap to watch.
Altium Limited (ASX: ALU)
Altium is one of the world’s leading electronic PCB software design companies. It has an impressive array of clients who are building the products of tomorrow like John Deere and Microsoft. It should continue to experience strong growth as more items join the ‘Internet of Things’, where everything is becoming more technological and connected.
In the recent half-year report it revealed revenue growth of 30% and earnings per share (EPS) growth of 50%. The company itself is predicting a lot of revenue growth over the next few years.
All three shares have done well for shareholders over the past few years. At the current prices I’d be hesitant to buy Altium shares, but Citadel could be a well-priced growth option at the current level.
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Motley Fool contributor Tristan Harrison owns shares of Altium. The Motley Fool Australia owns shares of Altium and Citadel Group Ltd. 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.