Can LoopUp Group Plc (LON:LOOP) Compete With Tech Giant Peers?

LoopUp Group Plc (AIM:LOOP), is a GBP£149.35M small-cap, which operates in the software industry based in United Kingdom. The past two decades have experienced unprecedented changes in technology, and the next decade looks equally drastic. While mobile and cloud computing become ubiquitous, there is a new wave of advancement emerging from innovations such as machine learning, robotics and augmented reality. Tech analysts are forecasting for the entire software tech industry, a positive double-digit growth of 12.47% in the upcoming year , and a whopping growth of 31.24% over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the UK stock market as a whole. Should your portfolio be overweight in the tech sector at the moment? Today, I will analyse the industry outlook, and also determine whether LoopUp Group is a laggard or leader relative to its tech sector peers. View our latest analysis for LoopUp Group

What’s the catalyst for LoopUp Group's sector growth?

US-based mega-competitors have been, and continue to be, the key drivers of industry growth. Many tech companies are repositioning themselves by focusing on high-growth areas such as IBM’s artificial intelligence play in Watson and Adobe’s shift to marketing its product for cloud computing. In the past year, the industry delivered growth in the teens, beating the UK market growth of 11.51%. LoopUp Group leads the pack with its impressive earnings growth of over 100% last year. This proven growth may make LoopUp Group a more expensive stock relative to its peers.

Is LoopUp Group and the sector relatively cheap?

Software tech companies are typically trading at a PE of 35x, above the broader UK stock market PE of 18x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry did return a higher 16.40% compared to the market’s 12.78%, which may be indicative of past tailwinds. On the stock-level, LoopUp Group is trading at a higher PE ratio of 138x, making it more expensive than the average tech stock. In terms of returns, LoopUp Group generated 41.66% in the past year, which is 25.26% over the tech sector.

What this means for you:

Are you a shareholder? LoopUp Group recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. However, this higher growth is also reflected in LoopUp Group’s high price, suggested by its higher PE ratio relative to its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto LoopUp Group as part of your portfolio. However, if you’re relatively concentrated in tech, the LoopUp Group’s high PE may signal the right time to sell.

Are you a potential investor? If LoopUp Group has been on your watchlist for a while, now may not be the best time to enter into the stock since it is trading at a higher valuation compared to other tech companies. However, that being said, its industry-beating growth delivered may be the reason for high relative valuation. I suggest you look at LoopUp Group’s future cash flows in order to assess whether the stock is trading at a reasonable price on this basis.

For a deeper dive into LoopUp Group's stock, take a look at the company's latest free analysis report to find out more on its financial health and other fundamentals. Interested in other tech stocks instead? Use our free playform to see my list of over 1000 other tech companies trading on the market.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.