The technology industry is definitely one of the 'sexiest' sectors out there. It certainly sounds more fun than a soup business or funeral business.
Technology has a lot of attractive economics. It doesn't take large amounts of capital to expand, compared to a manufacturing business that may need to build a whole new factory.
Once the technology has been researched and developed it's very easy to distribute additional products for little cost.
However, a lot of technology businesses are trading on very high valuations compared to their expected growth such as WiseTech Global Ltd (ASX: WTC).
That's why I would consider these two technology shares:
Kogan.Com Ltd (ASX: KGN)
Kogan is one of Australia's leading online retailers. It has made a name for itself as a low-cost seller of electronics like phones and TVs. However, it now offers a wide range of items and services like mobile, internet, insurance and appliances. It soon could offer loans through Kogan Money.
As Kogan increases the number of active customers it can sell more products and services to its loyal customer base. Kogan just on-sells insurance and other complex products that are provided by specialist businesses like Pepper Group, Kogan is just the middle man. This means there's little risk for Kogan.
The share price has fallen by a significant 44% over the past five months. It's trading at 'only' 34x FY18's earnings, but it has doubled its profit each year for the past three years. If it grows profit by 50% in FY19 it could be quite cheap at today's price.
However, Amazon could be a very fierce competitor over the coming years. But, there may be enough space for both of them to excel.
Citadel Group Ltd (ASX: CGL)
Citadel specialises in offering secure information management to a variety of sectors like defence, security, health and education.
Once the company has won a contract it's very attractive for Citadel because the contracts are long-term and it earns high profit margins on the recurring revenue. I also like that most of Citadel's clients are government-related in some way because they're usually reliable clients.
Management are executing on the strategy well and winning more contracts each year. In FY18 it grew revenue by 9.8% and earnings per share (EPS) increased by 35.4%. Despite the strong result, it's trading at under 25x FY19's earnings.
Foolish takeaway
Both are trading at attractive levels for their growth rates and both pay growing dividends with grossed-up yields of more than 2%.
If I had to pick one at the current prices it would be Citadel for its seemingly defensive earnings.
