ASX tech shares could be the best way to generate long term returns. May 2021 could be a great time to buy shares of them.
Technology businesses have the potential to grow very fast and do so with strong operating margins. I’ve already written about Redbubble Ltd (ASX: RBL) in another article, so I’m going to talk about different ones this time.
Kogan.com Ltd (ASX: KGN)
The Kogan share price has been savaged this year. It’s down 17% since 20 April 2021 and it has almost halved since 25 January 2021.
Investors shouldn’t focus too much on a past share price, but I think it shows how much the market has been turned off Kogan. I don’t believe its long-term prospects are half as good as they were a few months ago.
The March 2021 business update certainly wasn’t thrilling. Gross sales grew by more than 47% and revenue went up over 65%. But there were inventory issues that caused the total adjusted EBITDA (EBITDA explained) to fall by 24%.
Kogan total active customers increased by 77% to 3.2 million, whilst active customers had grown to 742,000 at Mighty Ape at 31 March 2021. That’s a good sign for medium term growth.
I think that short term declines and issues can be good buying opportunities. The e-commerce trend still has a very long way to run in my opinion. As the younger Aussies become the main spenders, that should see Kogan naturally grow as an e-commerce business.
Using Credit Suisse’s numbers, the Kogan share price is valued at 24 times the estimated earnings for the 2022 financial year. That looks good value to me if it can get back to earnings growth in FY22. I think it’s one of the best value ASX tech shares right now.
Betashares Cloud Computing ETF (ASX: CLDD)
This is a really growth-orientated exchange-traded fund (ETF). It’s focused on businesses that predominately provide a cloud computing service.
Cloud computing has been a strong sector for a number of years, particularly since COVID-19 came along.
There could still be plenty of growth to come because a lot of the world’s digital data and software applications is still not on the cloud.
It has a fairly high management fee cost for an ETF, with a cost of 0.67% per annum. But the returns of the index that it tracks have been exceptional – over the last five years it has been 37.5% per year.
In terms of the sectors, it’s invested in a number of different segments: application software, internet services and infrastructure, systems software, specialised REITs (real estate investment trusts), movies and entertainment, internet and direct marketing retail and more.
Some of its biggest holdings are: Proofpoint, Dropbox, Xero Limited (ASX: XRO), Zscaler, Twilio, Shopify, Workday, Akamai Technologies, Paycom Software and Paylocity.
I think it’s a great way to capture the broad growth in the sector, whilst not having to make the choices yourself, and getting diversification.
