The incredible value growth stock you’ve never heard of!

Finding a fast-growing and undervalued technology stock can be like finding a needle in a haystack. Here is one misunderstood company that you may want to consider…

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Taptica (LSE: TAP) is a specialist in-app mobile advertiser. It is a data-driven operation but, unlike Facebook, this is not based on personal information but on consumer habits. For example, after an app is downloaded, Taptica may look at what other apps people will go on to purchase. Taptica can then compile the data and use complex algorithms to help the right people see the right adverts.

If this seems very confusing to you then you are not alone: the share price recently fell from over 500p to under 280p in the aftermath of the Facebook scandal and the subsequent data protection regulations, despite Taptica not storing personal information. This uncertainty from investors has caused the share price to lag behind the growth and profits that the company has produced.

Results looking good

Taptica has tried to calm the nerves of investors since the Facebook scandal and, following a good set of results earlier this month, the share price seems to be gaining momentum. Revenue grew by 119% and profit by 126% in the first half of this year, although most of this was through the acquisition of an American company, Tremor Video. Some investors feared this was a bad move but these latest results show the competence of the management as Tremor is already generating good profits.

Consider this alternative

Growing tech companies in new sectors normally sell for a premium: take Blue Prism (LSE: PRSM). Despite being tempted, I chose not to invest last year because I didn’t think it justified its valuation. The price has since doubled and now has a market capitalisation of over £1.5 billion around 40x higher than last year’s revenue of £38.1 million and no profit in sight. Some may see this valuation as justified by its habit of regularly exceeding expectations, but I would not want to be holding this stock on the day that it ‘only’ meets expectations.

Comparatively, Taptica has a market cap of around £250 million, revenue of £220 million and a profit of £15.8 million. When you look at these two companies side by side, it is easy to see the extent that the stock market is driven by sentiment and how dangerous this could be if there is no margin of safety.

What is it worth?

Taptica has a forecast price-to-earnings (P/E) ratio of 9.5. Personally I would expect a growing company, generating a good profit, in a growing market, with lots of cash and no debt to have a P/E ratio of at least 15 which gives a share price of around 580p and is what it would probably be worth without the Facebook scandal.

I purchased Taptica after the fall in the share price and, while there have been a few bumps, investors’ trust finally seems to have returned. While many may be uncertain exactly what Taptica does, the management has demonstrated it is very capable of growing the company; therefore I expect Taptica’s share price has a lot of catching up to do.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Robert owns shares in Taptica. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »

Investing Articles

2 FTSE dividend shares yielding more than 6% with P/Es of less than 9!

Harvey Jones picks out two brilliant FTSE 100 dividend shares that yield more than 6% but are selling at strangely…

Read more »

Investing Articles

Up 105% in a year! Is this rocketing FTSE bank the perfect pick for my Stocks and Shares ISA?

Harvey Jones is drawing up a shortlist of stocks to purchase inside his Stocks and Shares ISA allowance. This FTSE…

Read more »