In this article I hope to give a brief overview of the ‘WAAAX’ ASX technology stocks.
WAAAX stands for WiseTech Global Ltd (ASX: WTC), Altium Limited (ASX: ALU), Afterpay Touch Group Ltd (ASX: APT), Appen Ltd (ASX: APX) and Xero Limited (ASX: XRO).
What Is WAAAX About?
One of the most commonly known share group acronyms is FAANG, which is the the US tech shares of Facebook, Amazon, Apple, Netflix and Google.
So of course, ASX investors wanted one as well – although the WAAAX group is a lot smaller, but rapidly growing.
Over the past year some of the best share price performers have been the WAAAX companies. During the last year the WiseTech share price has gone up 69%, the Altium share price went up 70%, the Afterpay share price has risen 60% and the Appen share price has gone up 148%.
All of them have been generating impressive growth. In their latest reports: WiseTech’s net profit grew by 48%, Altium’s net profit grew by 58%, Afterpay isn’t making a profit yet but it grew total income by 85%, the Appen’s net profit went up by 192% and Xero’s EBITDA (click here to learn what EBITDA means) excluding impairments increased by 84%.
What Do The WAAAX Shares Do?
WiseTech is 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 subscription model. Meaning, WiseTech directly benefits as its customers grow their businesses.
Altium’s software focuses on electronics design systems for 3D PCB design and embedded system development. Its services include Altium Designer, Altium Vault, CircuitStudio, CircuitMaker, TASKING and Octopart. A lot of the world’s leading businesses use Altium in some way like Tesla and Google.
Afterpay Touch is the owner of the popular “buy now, pay later” service which allows customers to spread out the payments for a product or service. It has a market-leading position in Australia but it’s also looking to grow in the UK and the USA.
Appen provides data for machine learning and artificial intelligence. Basically, it provides and improves data for the development of artificial intelligence and machine learning products.
Xero has become the dominating player in the business and accounting software market in Australia, New Zealand and the UK. Employing more than 2,300 people, Xero helps more than 1.8 million subscribers manage their accounting and tax obligations.
Valuation
Using Commsec’s estimates of future earnings for FY20:
WiseTech is valued at 115 times estimated earnings.
Altium is valued at 52 times estimated earnings.
Afterpay is valued at 189 times estimated times.
Appen is valued at 49 times estimated times.
Xero isn’t expected to make a profit in FY20, although it’s not trying to.
Are Any Of The WAAAX Shares Buys?
It’s harder to value Xero and Afterpay because they’re not yet profitable. WiseTech looks expensive, but it has a number of positive aspects like high recurring revenue and good organic growth. But it’s too expensive for me.
I’m not sure how much of a moat Appen has, which rules it out for me, although its recent acquisition could improve that.
Which leaves Altium, which I believe has plenty of opportunities and good aspects, although I may be a little bias because I own shares (because I believe it has a good future). Is it a good buy today? Well it depends on interest rates – if they stay low for many years it’s probably a good price, otherwise it’s too expensive.
The growth shares in the free report below could be better buys instead of the WAAAX shares.
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