1 tech stock I’d buy for explosive returns in the next 5 years

Zaven Boyrazian analyses a high growth tech stock leading the e-learning industry through the Covid-19 pandemic.

| 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.

In the disruptions caused by the Covid-19 pandemic, reliance on innovative technologies from tech stocks has skyrocketed. This digital transition is fundamentally changing the way businesses, schools, and even governments are operating, with all three types of organisations seeking digital talent management solutions.

The opportunity

Learning Technologies Group (LSE:LTG) provides a variety of digital learning services and software for such organisations. The tech stock has a vast array of learning platforms and services within its portfolio. Each can be configured to other systems for seamless integration with existing client processes.

tech stock explosive growth
Image Source: Learning Technology Group 2019 Annual Report

LTG can quickly adapt to a client’s needs, giving it a serious competitive advantage in a market that is projected to be worth £325bn by 2025!

The industry space is highly fragmented. Many smaller players exist, and some companies rely on in-house technology to train their staff. As a result, there is a lack of standardisation, which can make the experience very clunky as well as reduce the cost-effectiveness of these learning programmes.

LTG’s growth strategy is one of consolidation. The management team seek out smaller companies whose technology or services compliments their existing portfolio. The team also targets sectors that suffer enormous consequences from an untalented workforce – such as aerospace, finance, and pharmaceutical industries.

The most recent acquisitions are Open LMS, a Moodle-based platform, from Blackboard Inc in March 2020, and eCreators, Australia’s largest Moodle provider, in October 2020.

Combined, these two acquisitions make the tech stock the world’s largest providers of Moodle-based e-learning solutions. Put simply, companies can use the platform to create, personalise, and track learning & examination programmes for employees and students alike.

The financials

The acquisitive nature of the business makes it relatively capital intensive as it bolsters its portfolio. So far, however, these acquisitions appear to be complimenting operations with revenue, profits, and margins all growing at double-digit rates.

£m 2019 2018 2017 2016 2015 Avg. Year-on-Year Growth (%)
Revenue 130 94 51 28 20 60
Operating Profit 16 1.3 1 -0.2 1.2 92
Operating Profit Margin (%) 12.3 1.4 1.9 -0.9 6 20
Goodwill Proportion (%) 42 42 38 45 36 3

The risk factor

However, there is a caveat to this approach to growth. As I have previously written, there are many ways in which acquisitions can destroy value rather than create it.

So far, this does not appear to be the case with Learning Technologies Group. However, it is worth being aware of the proportion of goodwill to total assets. As a reminder, goodwill represents the premium paid when acquiring another business. In my view, it doesn’t serve as a useful asset regarding the direct creation of value for shareholders. Seeing a large portion of goodwill is a concern.

If this proportion continues to increase beyond 60%, then it suggests one of two things. Either the firm is paying too much, or acquisitions are occurring too frequently, preventing the creation of firm value.

The Covid-19-accelerated global shift to digital learning platforms has expanded the opportunities for companies like Learning Technologies Group. Given its established reputation and diverse portfolio of offerings, I think this tech stock is on course for some explosive returns over the next decade.

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.

Zaven Boyrazian owns shares in Learning Technologies Group. The Motley Fool UK has recommended Learning Technologies Group. 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

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Is the S&P 500 going to 10,000 by 2030? This expert thinks so

One stock market strategist sees animal spirits taking hold and driving the S&P 500 index even higher by the end…

Read more »

Investing Articles

I’m expecting my Phoenix Group shares to give me a total return of 25% in 2025!

Phoenix Group shares have had a difficult few months but that doesn't worry Harvey Jones. He loves their 10%+ yield…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

14.5bn reasons why I think the Legal & General share price is at least 11% undervalued

According to our writer, the Legal & General share price doesn’t appear to reflect the underlying profitability of the business. 

Read more »

Young black man looking at phone while on the London Overground
Value Shares

After a 16% drop, FTSE 100 stock JD Sports Fashion looks like a steal to me

This FTSE 100 stock has tanked since mid-September. Edward Sheldon believes that there's value on offer after the share price…

Read more »