ASX tech shares can be a really good way to find long-term returns.
Some of the best investments over the last decade on the ASX have been technology, or heavily involve tech, such as Xero Limited (ASX: XRO), REA Group Limited (ASX: REA) and Pro Medicus Ltd (ASX: PME).
There are a handful of ASX tech shares that I think are good value today and can generate very good growth over the next five to ten years:
Pushpay Holdings Ltd (ASX: PPH)
Pushpay is a leader in the electronic donation space in the US. Its client base includes medium and large US churches.
I think it’s a good business for several reasons.
It has a large target market. Management believe that getting to a 50% market share in the sector would translate into $1 billion of annual revenue. There’s a long way to go to reach that number.
Pushpay is showing excellent operating leverage even at the size it’s already operating at.
In the FY21 half-year result it saw its EBITDAF margin (EBITDA explained, the F stands for foreign currency) climb from 17% to 31%. I think it’s reasonable to be quite bullish on how much more profitable the business can become as it gets larger. And it’s getting bigger quickly.
The ASX tech share is reportedly doing really well with its all-in-one offering called Churchstaq which brings the church management software, digital giving platform, and church app together.
One of the most pleasing things about Pushpay as a share is that it regularly upgrades its guidance, which suggests it could be an ASX share that beats market expectations and makes decent returns.
At a share price of $1.68, Pushpay is valued at 22 times the estimated earnings for the 2023 financial year.
Kogan.com Ltd (ASX: KGN)
The Kogan share price has fallen 23% since 20 April 2021. It has now more than halved since 25 January 2021.
A falling share price doesn’t necessarily mean something is good value, but I think it can be here.
Growth isn’t always going to be in a straight line upwards, particularly for ASX tech shares. Kogan has gone through share price declines before – remember 2018?
The e-commerce business has grown in size (revenue-wise) with a boost from COVID-19 impacts on (online) retail. Its operating profit margins had been steadily rising up until the March 2021 business update. I think margins can return to growth after the inventory problems have been sorted out.
Businesses like Kogan.com have good operational advantages. Leveraging digital infrastructure means that margins can rise as volumes increase. And Kogan’s strategy of selling lots of different categories of products and services means that it can sell more things to more customers (or even to paying members).
