The global cybersecurity market is booming and companies like Avast (LSE: AVST) are struggling to keep up with the demand for their services.
As a leading global cybersecurity provider, Avast is one of the first companies customers turn to when they require advice and software to stop cybercriminals, which in my opinion, makes this one of the best stocks investors can buy today to profit from the market’s growth.
Cash flow champion
According to the group’s first quarter trading update, revenues increased by 6.1% in the first quarter of 2019. Excluding the impact of discontinued business and the sale of its Managed Workplace division, Avast’s revenue increased 8.5% year-on-year for the quarter. City analysts are expecting the firm to report revenue growth of around 6.2% for the full year, and it looks as if the company is on track to hit this target after those first-quarter numbers.
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Revenue growth isn’t the only reason why I think Avast can double your money. This company is also exceptionally profitable. According to its first-quarter trading update, adjusted EBITDA increased 5.4% to $117.5m, resulting in an Adjusted EBITDA margin of 55.5%.
At the moment, most of the cash flow generated by the business is being used to reduce debt. At the end of March, the company had a net debt-to-EBITDA ratio of 2.3 and it paid off $200m of debt during the first quarter taking the total amount paid off in the past two years to approximately $700m, according to my calculations.
Despite the company’s steady growth and healthy cash generation, shares in Avast are trading at just 12.3 times forward earnings, compared to the UK tech sector average of 19.5. This looks too cheap to pass up and implies the shares should be dealing around 60% higher than they are today. Add in the stock’s 3.5% dividend yield, and potential for high single-digit earnings growth for many years to come, and I don’t think it is unreasonable to say that this investment could double your money over the next three to five years.
Special dividends
As well as Avast, I reckon Micro Focus (LSE: MCRO) is an undervalued UK tech champion. City analysts are expecting this company to report earnings per share growth of around 32% for 2019, an impressive turnaround for the business which reported almost no growth between 2013 and 2017.
After growing 32% this year, analysts have pencilled in growth of 8.8% in 2020, leaving the stock trading at a 2020 P/E of 10.4. As mentioned above, this multiple is significantly below the UK tech sector average of 19.5.
What’s more, this is one of the most attractive income stocks in the FTSE 100. Shares in the company support a dividend yield of 4.4% at present and it has a history of returning cash to investors via special dividends and share buybacks.
Between 2011 and 2017 Micro Focus handed back close to 600p per share of cash to shareholders via special and ordinary dividends and it’s planning a further $1.8bn cash return during the next few months following the sale of its SUSE business to Swedish buyout group EQT Partners for $2.5bn.
Once again, with these return on offer, I do not think it’s unreasonable to say it’s possible Micro Focus could double investors’ money over the next two years.
