Investors have been pleased with the gains in the technological industry over the last year. Huge tech stocks such as Facebook, Amazon, and Netflix have made a substantial impact on the market. Even smaller stocks such as NVIDIA, Shopify, and Arista have seen large increases after every period. While research continues to show that investing in the technology sector could potentially bring lucrative rewards, many investors are still hesitant to invest in tech stocks due to a lack of understanding concerning the technology. If investors are not aware of what the tech companies can do, it is difficult for them to see the long term growth of their potential investment. Here are a couple of variables that investors should look at to see if a tech company is on the rise.
Many investors feel that tech companies should be doing more than just promoting their products and services. Investors should pay attention to a company’s operating margins. By looking at a company’s operating income and dividing it by their total revenue, investors can get a realistic idea of a company’s profitability. If a company has shown that they can increase their operating margin, that is a symbol that the company still has appeal. Appealing companies are able to uphold their competitive advantage over their peers.
Increased Revenue Streams:
Investors are looking for tech companies that have shown the ability to maximize their revenue growth. When companies start working on a project that has the potential to be special, investors are quick to jump on the opportunity. Companies that are able to grow their revenue at a high rate send a signal to investors that their products and services are popular.
Why Do Investors Avoid Tech Companies?
Many investors have noted that they avoid tech companies because of the difficulty in measuring the competitive advantage in the industry. Investors have also noted how difficult it is to identify which companies have great potential because most companies still have room to develop. It’s hard to predict where the next major discovery will come from. Many investors fear partnering with a company only to see them passed by an unlikely competitor that happened to create the next great technological advancement. Regardless of the risks, the potential rewards of investing in the technological industry are too lucrative for many investors to turn down. The World has embraced the arrival of the mobile and digital age.
Edward Schinik has been with the Investment Manager since 2009.