After its explosive debut in the UK market, the Darktrace (LSE:DARK) share price rose to 1,000p in September. But in the last two weeks, it has slid 37.5% and was trading at 599p at the time of writing this article earlier today.
This move came after Peel Hunt’s downgrade to ‘sell’ with a forecast price of 473p. The broker’s report suggested that the Darktrace share price was overvalued factoring in the revenue figures and low R&D budget.
For me, historic performance is a crucial indicator of returns in the tech space. And for the past three years, Darktrace has been recording a net loss. But it should be noted that performance has been improving. The recently published half-yearly 2021 report showed an annual growth rate of 40% and 42% growth in its active customer base.
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But I still think there are much better offerings in the UK market at the moment. Here are two stocks operating in exciting areas within the tech space that I think are much better growth options than Darktrace.
FTSE 250 star
I think software company Kainos (LSE: KNOS) is often overlooked by investors. The company has excellent revenue figures that have been growing steadily over the last decade.
Kainos provides solutions to improve communication and performance within companies. Given the digital work revolution in the last two years, it’s an area that has gained huge prominence. The company has a large client base including Netflix, Primark, ASOS and the NHS. This shows an established global presence in an incredibly competitive space.
Its shares have risen 62.5% in 2021 and an incredible 863% in the last five years. And I still think there’s a lot of room for growth, given the increasing need for digital workplace solutions.
But it operates in a very congested sector and competes with big names like Amazon Web Services and IBM. Also, given its share price explosion, it’s trading at a forward profit to earnings ratio (P/E) of 60x. But I’m not too bothered by the inflated valuation given the strong sustained financial performance. This is why I think Kainos looks like a much better tech pick for my portfolio today.
Explosive mix of IT and energy
I wrote about tech firm Aveva (LSE:AV) last month because of the its data-driven solutions for companies in the energy sector. Since then, the company has released the Aveva Data Hub, its own Software as a service (Saas) offering. This is part of its cloud computing division that works alongside the data solutions the company offers.
The company recently acquired OSIsoft for £3.8bn to improve its data services for clients like BP, GlaxoSmithKline and EDF. I think the energy sector will see some huge advancements in the coming years as fuel price hikes and coal shortages grip nations worldwide.
There are risks to consider when operating in an emerging area like data analytics. One new gamechanger could banish Aveva to obscurity. And that’s the ruthless world of tech. But the company invests heavily in R&D and I think the probability of this is very low. Compared to Darktrace, Aveva has a long history of excellent returns and an established international clientele which is why I think it’s a better fit for my portfolio.
