This tech stock is up 23% since March. Should I buy now?

With UK tech stocks on the rampage, this FTSE 100 share is up 23% since March. Is Sage Group a buy for my portfolio at its current price?

| 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.

UK tech stocks are on the rise. Monitoring the FTSE techMARK 100, a growth-based tech index,  I’ve seen that tech stocks are outperforming FTSE 100 for the first time in history.

Historically, non-tech companies drove the index while the tech stocks lagged behind. In January 2019, the FTSE techMARK 100 index was at 4,369 compared to the overall FTSE 100 index which was trading at 7,617. After the market crash in March, the tech index has recovered tremendously and is now trading at its all-time-high price of 7,208, ahead of FTSE 100 which is trading at 7,076.

The post-pandemic surge in tech stock shows a switch in investor mentality in the UK. It is an exciting time to invest in some tech stock and Sage Group (LSE:SGE) is on top of my list.

Its shares have risen 23% since March and are currently trading at 704p and showing no signs of slowing down. It is still a buy for me, despite the recent surge as I think the stock is primed for long-term returns.

Financials

The company has posted some impressive numbers in the third-quarter (Q3) trading update released recently. Organic recurring revenue in 2021 grew 4.4% to £1,220m from £1,162m in 2020. 

An impressive 91.7% of Sage Group’s revenue is recurring, which shows me that its subscription-based software has incredible renewal figures. The number of subscribers to its software also grew by 11% to £920m (Q3 2020: £830m). As a result, subscription penetration increased to 69% (Q3 2020: 64%).

Revenue in North America grew 7% in 2021 to £475m. This is an encouraging sign as expansion potential for tech companies is greater in North America than the UK.

Another factor I look at for potential long-term returns is net cash. Sage has large available cash reserves which stand at £1.3bn. This could add to the current 2021 total dividend of 17.37p. The 2021 interim dividend was boosted by 2% to 6.05p and this trend could continue in the long term given the sales figures and expansion potential using cash reserves.

The company outperformed its expectations of 3% growth in revenue during Q3 2021. Sage’s CFO has stated that “growth is accelerating, driven by increasing demand for Sage Business Cloud solutions, particularly in cloud-native”.  The increasing demand for Sage’s primary product is encouraging to me and the tech stock is showing signs of sustained growth over the next five-year period.

Concerns

Though the short-term figures look promising, returns over the last 12 months are very concerning. The share price has dropped by 6.2%, causing Terry Smith to sell Sage stock in June 2021. Also, the share prices have dropped 2% in the last five years. 

The company also faces stiff competition in North America from Amazon Web Services, a leader in cloud computing services overseas.

But I still see tremendous long-term potential with Sage Group and its Q3 2021 financials look strong, which is a good starting point for sustained growth. The stock could be set to continue its impressive run since March over the next five years, making it a must-have UK tech stock for my portfolio.

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.

Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Sage 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

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »