1 top UK technology stock I’d buy today

Right now, the world is in the midst of a technology revolution. Here, Edward Sheldon highlights a UK tech stock he’d buy today.

| 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.

Technology stocks are rising again. For a while, tech stocks were out of favour because investors were focused on reopening plays. However, it seems the market has suddenly remembered there’s a digital revolution under way and money is now rapidly flowing back into the tech sector.

Here, I’m going to highlight a top UK tech stock I’d buy today. I think this stock has a lot of potential in today’s digital world.

A top UK technology stock

Gamma Communications (LSE: GAMA) is a leading provider of unified communication (UC) solutions. UC incorporates voice and video calling, video conferencing, messaging, team collaboration, file sharing, and more. 

Should you invest £1,000 in J D Wetherspoon Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if J D Wetherspoon Plc made the list?

See the 6 stocks

The reason I’m bullish on Gamma Communications is that it looks set to benefit from the remote-work trend. Today, employees don’t need to be confined to a specific desk, phone, or computer to do their jobs. With the right technology, they can work from anywhere (as long as there’s an internet connection).

As more businesses go digital in the years ahead, Gamma should prosper. It’s worth noting that experts believe that between now and 2025, the unified communications-as-a-service market is likely to grow at a rate of around 25% per year. 

Strong growth

Gamma has an impressive growth track record. Between 2015 and 2020, revenue climbed from £191.8m to £393.8m. Over this period, net profit also jumped from £18.3m to £64.2m.

Earlier this week, the company said it had seen continued growth in the first half of 2021. It also said it expects full-year results to be in the upper half of market consensus estimates. 

A high-quality company

Top-line growth isn’t the only thing I like about Gamma Communications. This is a high-quality company. Recurring revenue is high at around 90% of total revenues and profitability is excellent (five-year average return on capital employed of 26.1%). The balance sheet’s strong too and the company also pays a growing dividend. Over the last five years, the dividend payout has risen from 6.6p per share to 11.7p per share.

I also think the stock’s valuation is very reasonable. Currently, Gamma sports a forward-looking price-to-earnings (P/E) ratio of about 34. In my opinion, that’s not particularly high given the company’s track record, quality attributes, and long-term growth potential.

Risks to consider

There are risks to consider here, of course. One’s the threat of competition. Gamma operates in a very competitive industry and it’s a small company compared to some of its peers.

Another risk is that the work-from-home trend could rapidly diminish as the world goes back to normal after Covid-19. I don’t think this is going to happen but if it does, Gamma’s growth could be impacted.

Overall however, I think the stock has an attractive risk/reward profile. In my view, this UK tech stock has considerable long-term growth potential.

But there are other promising opportunities in the stock market right now. In fact, here are:

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy now

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.

Edward Sheldon owns shares of Gamma Communications. The Motley Fool UK has recommended Gamma Communications. 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

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Here’s the Tesco share price forecast for the next 12 months!

Tesco's valuation has dropped to multi-year lows after recent share price weakness. Is now the time to consider buying the…

Read more »

Illustration of flames over a black background
Investing Articles

Just released: March’s higher-risk, high-reward stock recommendation [PREMIUM PICKS]

Fire ideas will tend to be more adventurous and are designed for investors who can stomach a bit more volatility.

Read more »

Investing Articles

I asked ChatGPT for the best FTSE 100 investment trust to buy… here’s what it said

There aren't many FTSE 100-listed investment trusts and according to ChatGPT there’s only one winner. Dr James Fox explores.

Read more »

Investing Articles

How much should investors put in an ISA to achieve the average UK wage in passive income?

Millions of Britons use the Stocks and Shares ISA as a vehicle to build wealth, but a successful investor can…

Read more »

Investing Articles

2 cheap FTSE dividend stocks to consider buying for an ISA

The deadline for using up the Stocks and Shares ISA allowance is almost upon us. Paul Summers has spotted two…

Read more »

Investing Articles

£20k in a Stocks and Shares ISA? Here’s how an investor could target £1,342 in passive income each month

Christopher Ruane explains how a long-term approach to investing a Stocks and Shares ISA could generate a four-figure monthly income.

Read more »

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet
Investing Articles

Millions are missing out on ISA account benefits! Here’s what I’m doing now

Swathes of people are missing the chance to supercharge their returns with a Stocks and Shares or Lifetime ISA account.…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Here’s my plan to survive and thrive in a stock market correction

A falling stock market can be an opportunity, but investors need a plan. Stephen Wright shares his strategy for taking…

Read more »