Some UK shares on an upward trajectory can go under the radar. I believe this is the case with Gamma Communications (LSE:GAMA). Here’s why I’m considering adding the shares to my holdings.
Communications provider
Gamma is a provider of unified communications solutions as a service (UCaaS). It has operations in the UK, Germany, Netherlands, and Spain, and continues to grow into new territories. Gamma develops its solutions and owns a significant amount of intellectual property. It sells these directly to customers and via a channel partner model.
As I write, Gamma shares are trading for 1,554p. At this time last year, the shares were trading for 5% higher, at 1,640p. The FTSE AIM incumbent listed in 2014 for 205p. At current levels, this equates to a 650% return.
UK shares have risks
The UCaaS market is growing and there are many firms vying for business and market dominance. Some of these names are perhaps more established and better known in the market. Losing out to competition and not gaining market share could deal a blow to Gamma’s growth aspirations and performance. This could also hinder any returns I hope to make.
The Gamma share price has pulled back in recent months. The shares were trading for over 2,300p in September. I think this is due to two reasons. Firstly, a stock market correction has lowered the price of many burgeoning UK shares. In addition to this, macroeconomic factors have also put pressures on worldwide stocks. I’m not worried about this, however. In fact, the current Gamma share price represents an opportunity, in my eyes.
Why I like Gamma Communications shares
Gamma operates in a growth market that is experiencing tailwinds, in my opinion. The continued digital transformation throughout the world has meant more businesses require UCaaS to continue to move with the times. In addition to this, in a lot of Gamma’s core markets, such as the UK and Germany, UCaaS adoption is lagging. I believe these opportunities will boost Gamma’s performance and shares upwards.
At current levels, Gamma shares present an opportunity to buy cheap shares. The shares sport a price-to-earnings ratio of just 21. In addition to this, it pays a dividend too which could make me a passive income. I do understand dividends are not guaranteed and can be cancelled, however. Its yield stands at just under 1%.
Most of the UK shares I review have a good track record of performance. I do understand past performance is not a guarantee of the future, however. Looking back, I can see Gamma has seen revenue and operating profit grow year on year for the past four years. Coming up to date, Gamma released a post-close update in January, for the year ended 31 December. Gamma said, despite economic uncertainty, it achieved upgraded forecasts and net cash was up too compared to last year. Full-year results in detail are due in the coming months.
Overall I do think Gamma Communications is an under the radar growth stock. I’d happily add the shares to my holdings. It has a good track record, operates in a growth market, and pays a dividend. What I also like about it is that it regularly acquires businesses to enhance its own offering and boost growth.