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Could this growing UK company massively outperform Microsoft shares over the next three years?

Andy Ross
·3-min read
Arrowings ascending on a chalkboard
Arrowings ascending on a chalkboard

Microsoft shares have jumped 33% so far this year. That’s pretty impressive when so many stocks have gone the other way. I think it’s an impressive company, especially for such a large organisation. Yet, I’m confident there are UK shares that can record even more impressive share price growth.

My first pick is a manufacturer, loosely connected to the tech industry. The second is from the technology sector itself.

A UK share with massive potential

DiscoverIE (LSE: DSCV), formerly known as Acal, is a manufacturer of electrical components. It serves really strong, growing markets such as renewables, medicine, and the internet of things. The growth of these markets should raise demand for DiscoverIE’s products. That has implications for being able to raise prices.

The group is also developing new five-year targets and wants to expand in North America and Asia. Management are clearly ambitious for the group and think it can grow much further.

Financially I think it looks good and it has a return on capital employed (ROCE) of 16%. Profit margins have been rising steadily and were at 8.5% at the end of March. From 2016 to 2020, revenue grew from £288m to £466m. Over the same time, profit before tax went from £8.8m to £19.5. That’s really strong growth that I expect can continue.

It’s an acquisitive company, which adds some risk. As long as management doesn’t overstretch and the acquisitions are of a bolt-on nature — small and well-aligned to what DiscoverIE does — then I think it makes the company higher growth and more dynamic.

That’s another reason why its shares have the potential to outperform Microsoft shares in the coming years.

So it’s technology manufacturer that combines a good track record, the ability to grow organically and by acquisition, and strong financials. It’s a share I really rate.

Another technology company that could outperform Microsoft shares

GB Group (LSE: GBG) is a clever little company involved in identity management and fraud prevention. It works with banks, e-commerce companies, the public sector and others and has an impressive roster of clients. As the world goes digital its services are very much in demand.

It’s another group that combines strong organic growth with acquisitive growth. In a fast-moving industry like cybersecurity, it’s vital to stay ahead of the pack. To date the tech company has done this well. Hence it trades at a high valuation, like other successful technology stocks.

Despite the high price-to-earnings ratio at the current share price, I still back it to do very well. If it delivers, the P/E will fall to a less intimidating level over time as well.

Like DiscoverIE, GB Group is a UK share that I expect can deliver better returns for its investors versus investing in Microsoft. It’s a British success story with further to go.

The post Could this growing UK company massively outperform Microsoft shares over the next three years? appeared first on The Motley Fool UK.

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Andy Ross owns no share mentioned. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Microsoft. 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.

Motley Fool UK 2020