Genuine growth opportunities are quite rare on the London stock market. But I think I’ve potentially found one in Netcall (LSE: NET) shares.
To me, a growth share is backed by a business that’s posting big annual increases in earnings each year. And it will often have a high valuation to match. But there’s often a volatile share price to contend with.
Impressive figures
When valuations are high, so are the stakes for investors. And any slip in the growth numbers can affect sentiment, causing shares to plunge. But fast movements can occur to the upside as well. And if I can bag a true growth leader, the long-term performance of the investment can be worth the discomfort of holding. However, happy outcomes aren’t certain with any stock.
Nevertheless, Netcall posted some impressive figures today with its full-year results report. The company provides software products and services and it’s growing its cloud-based offering fast. The firm’s Liberty software platform helps businesses to create “a leaner, more customer-centric organisation”. And customers include around two-thirds of the NHS Acute Health Trusts and companies such as Legal and General, Lloyds Banking Group, Santander, and Aon.
Despite all the scary general economic headlines lately, Netcall experienced “continued strong trading throughout the year”. The company’s trading year ended on 30 June. And year-on-year revenue came in 12% higher with a 30% rise in revenue from cloud services.
The improvements in turnover dropped down to the bottom line with a 44% uplift in adjusted earnings per share. And there was a strong cash performance as well with net funds rising by 97% to £13.4m.
A growing market opportunity
Chief executive Henrik Bang reckons Netcall has a “significant and growing market opportunity”. And that arises because there’s an increasing trend of organisations implementing digital strategies and business models.
The company’s growth rates are on the rise. And Bang said the trading momentum has continued into the start of the new trading year. There’s a growing order book and higher recurring revenues. And the directors have “confidence” in Netcall’s continued success.
The future for the business appears to be in the cloud. There’s “significant” momentum from the firm’s cloud services revenue stream. And it now accounts for around 90% of new product bookings.
But although earnings are ramping up, it hasn’t always been like that. Prior to 2020, the company posted several years of declining earnings. But It seems that Netcall has found its growth mojo now. And the move to cloud-based services appears to be a big driver of the improved situation.
A full valuation
However, strong ongoing growth is never certain or guaranteed with any business. Nevertheless, City analysts have pencilled in an uplift in earnings of around 33% for the current trading year to June 2023. And with the share price near 81p, the forward-looking earning multiple is around 32.
That valuation looks well up with events, to me. So, there’s no margin for error. If Netcall experiences lower rates of growth ahead, I could lose money on my shares. Nevertheless, I like the growth story. And I’m keen to hold some of the shares for the long term to see what happens.
