Why Micro Focus International plc is set to be a millionaire-maker stock
People often ask whether or not it really is possible for ordinary retail investors to become millionaires simply by investing in the UK stock market. The answer of course is yes, and I'm not talking about the dim and distant past. Indeed, Individual Savings Accounts (ISAs) were introduced less than 20 years ago, and yet there are plenty of ISA millionaires to be found up and down the country.
One way to achieve this dream could be to stake a claim in a handful of speculative stocks hoping that they'll become the next ASOS or Domino's Pizza, both of which have seen their shares prices explode over the years and turned early stakeholders into multi-millionaires.
But there is another way. Spectacular returns can also be realised by investing in larger, more established companies that have a proven business model and delivered a track record of profitable growth. Take Micro Focus International(LSE: MCRO) for example. The FTSE 100 software giant has a market value in excess of £9bn, and yet it still manages to deliver double-digit earnings growth year-in year-out.
Interim results announced this morning revealed a mammoth 80.3% increase in revenues to $1.2bn for the six months to 31 October, with the newly acquired Hewlett Packard Enterprise (HPE) Software unit contributing a very significant $569.8m. Operating profit for the period rose 34.7% to $220m, while pre-tax profits soared 28.7% to $145.7m, compared to $113.2m for the first half of the prior year.
Clearly, the merger with HPE Software is having an immediate positive impact, with the enlarged group now one of the world's largest pureplay software companies. Going forward I see huge growth opportunities, with recent acquisitions giving the company a wider geographical footprint and access to more markets around the world.
The share price has pulled back sharply from last year's all-time highs of 2,871p, and plunged further today after the results missed some analysts' expectations. But I see this dip as a great buying opportunity with the shares now trading on a very enticing price-to-earnings ratio of 14.
Another, much smaller, software firm that I believe could be a millionaire-maker over the longer term is AIM-listed technology minnow Ideagen(LSE: IDEA).
Valued at just over £200m, the Nottingham-based firm is but a fraction of the size of its FTSE 100 counterpart, and yet boasts a customer base of over 3,000 organisations that use its wide range of information management software products, including high-profile names such as the European Central Bank , Royal Dutch Shell, Emirates Airlines, and BAE Systems.
As I predicted last July, the share price has now breached the £1 mark, but I believe this is just the start. The company has been growing its earnings at a double-digit rate every year since it went public in 2012, and its earnings multiple of 25 may be expensive-looking but still manages to compare very favourably to other high-growth technology firms in the software arena.
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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended Domino's Pizza, Micro Focus, and Royal Dutch Shell B. 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.