The Data#3 Limited (ASX: DTL) share price is down 15% in 2022, versus the All Ordinaries (ASX: XAO) which is down 8%. Fellow ASX tech shares like the WiseTech Global Ltd (ASX: WTC) share price and the Netwealth Ltd (ASX: NWL) share price are around 30% lower each.
DTL share price
Data#3 is a leading Australian IT services and solutions provider, focused on helping its customers solve complex business challenges using innovative technology solutions. In recent year Data#3 has capitalised on the dramatic shift to cloud computing (think Google Docs, Microsoft 365, iCloud, etc.).
The migration to cloud computing is simple for most of us: pick up your phone, open your browser, log in. However, when it comes to on-premise IT services for business (think: on site databases that need to work remotely, reception staff using cloud-based software that the sales staff in the field can access, etc.), this are much more complex. This is where Data#3 comes in.
Because DTL’s services are interwined, its financial results are primarily lumped into “infrastructure” and “software”, with ancillary serives around the edges (e.g. IT and business consulting). For me this makes it a little harder to get granular with forecasting. That said, if you zoom out in the DTL share price chart above, say to 5 years, you can see the benefit of its blended approach playing out in the share price.
Data#3’s top line (revenue) has grown between 10% and 20% per annum for around five years now, and analysts are forecasting more of the same. The next two to three years will be a test of its retention, pricing power and operating leverage. While shares are changing hands at a price-earnings ratio of around 27x, I wouldn’t be surprised to see the ‘e’ in PE keep growing, regardless of what the economy is doing.
My takeaway for the DTL share price
With a handy 3% dividend yield and ongoing growth, it’s easy to see why Data#3 is fan favourite. While we could debate over business quality, I’m more inclined to consider DTL shares for my portfolio over, say, WiseTech or Netwealth. WiseTech and Netwealth are perhaps higher-quality franchises but their shares trade at PE ratios that reflect that belief — 71x and 50x, respectively. Meaning, Data#3 looks better value right now.
I’m waiting for DTL to report its next set of financials before making a move. If you like Data#3 or tech shares, take a look at our list of top ASX shares for 2022 — specifically the “moat quality shares” list.
