In February 2019, WiseTech Global Ltd (ASX: WTC) released their half-year financial report showing impressive growth. I reported on it, thinking it all looked rosy. Then…
The share price dropped by 10%! You can read the earnings coverage here.
What Does WiseTech Do?
WiseTech Global was founded in 1994 by Richard White to provide software to the logistics sector. Since then it has grown to become a global provider of logistics software, claiming to service 19 of the top 20 logistics companies globally. WiseTech makes money by charging its customers on a ‘per use’ basis rather than as a standard subscription model. Meaning, WiseTech directly benefits as its customers grow their businesses.
After the report, I looked at the company more closely and decided that it was, in fact, a good report, and the share price should go back up. I bought shares at $21.03 the next day. Don’t do what I did!
That was a Thursday morning, and by Tuesday the next week, the share price was at $18.25, a loss of about 13.2%. Gosh Darnit!
My WiseTech Mistake
I went wrong when I saw a healthy-looking report and I decided that I knew better than the market. Contrary to my investment philosophy, I invested without doing my own valuation of the company, thinking I could make a quick profit.
Although the report was a good one, showing revenue up 68% and EBITDA up 52%, I didn’t properly consider the price I was paying.
I bought WiseTech at the wrong time, but I don’t regret buying it. The half year report did show impressive growth and guidance for 2019 is further growth of 45%-51%.
Profit/earnings per share and dividends per share both grew 43% through 1H19 and there were positive signs from existing customers ramping up usage of the CargoWise One platform.
WiseTech charges customers on a per-use basis so their revenue increases when their customers grow their business. In fact, 84% of 1H19 organic revenue growth came from existing customers.
Some other factors I like are the 11.6% return on equity and a debt-to-equity ratio of just 0.7%.
When I bought WiseTech shares I bought what I believe is a good business at a bad price. Although I’m now sitting on a small profit, I wouldn’t recommend buying at the current level. If the share price does pull back, there could be an opportunity for a solid long-term investment in a high growth company. Just always make sure you buy the business for less than what it’s worth!
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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
Disclaimer: At the time of writing, Max owns shares in WiseTech Global Ltd.