Are you a technophobe? Is using a web browser the limit of your computer ability and are you happy to keep it that way? Well, then let's keep investing in information technology stocks easy, and look at one simple thing – how much money would you have made with an IT company over the past five years.
Total shareholder return is what they call it, and it covers the percentage change in share price in the value of your stocks. In addition, we also want to add in all the dividends you would have received if you had owned stock for the whole time period, and reinvested every single dividend back into the company.
Of these three companies, which would have given you the best total shareholder return over the past five years?
IRESS Ltd (ASX: IRE) is a provider of financial market and wealth management solutions. Its products and services cover financial portfolios, buy and sell-side orders, direct exchange connectivity and financial planning platforms. Its largest market is Australia and New Zealand, but it also operates in Canada and recently the UK.
Between 2010 and 2012, full-year underlying NPAT decreased from $58.4 million to $39.2 million, but in H1 2013 half-year underlying profit popped up to $20 million. Since then it has acquired the UK company Avelo, whose information services cover investments, insurance and mortgages.
Over the past five years, its total shareholder return was an average annual 18.6%. Since early 2012 its share price has risen from about $6 to $9.57.
Technology One Limited (ASX: TNE) offers services and develops software for financials, HR & payroll, supply chain and business intelligence. It has developed a web browser-based software platform version that can be used by customers on computers and mobile devices. Now the company's latest development is a cloud computing based version, keeping up with the way clients want to access and use their platform applications.
Over the past three years, it has raised its underlying NPAT by 51% from $17.8 million to $26.9 million. Usually net profit margins are around 13%-15% and ROE is in the high 20s, low 30s.
Its total shareholder return for the past five years was an astounding average annual 35.8%, especially thanks to its share price going from about $1 in early 2012 to its current $2.32.
Infomedia Limited (ASX: IFM) uses its information technology for after sales parts and service sectors of the auto industry that deal with online parts selling, menu pricing systems and data analysis for auto makers. Its products are used in over 186 countries.
After 2008, underlying net profit began declining until it hit a low in 2012, but in 2013 it rose 18% from $8.46 million to $10 million. It developed a browser-based information platform that customers could access from anywhere, and increased the updating of information and systems much faster than before, making it easier and more reliable to use.
2012 must have been a magical year for IT companies in general because it also saw a share price rise starting in mid-2012 at around $0.20 a share, it then climbed steadily to its $0.63 price presently.
That makes its total shareholder return an average annual 25.9% over the past five years.
Foolish takeaway
Sometimes being a tech-head has its advantages, but you don't have to overthink good performance. These companies are using technology for applications in business, finance and parts supply and the common thing here is that they are supplying a basic need, but giving it to the customers in an accelerated process so that they do their jobs better.
