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A deep dive into ASX shares

The ASX Ltd (ASX:ASX) share price is lower 0.1% since the start of 2024. It's probably worth asking, 'is the ASX share price undervalued?'
The ASX Ltd (ASX:ASX) share price is lower 0.1% since the start of 2024. Let’s take a look at why investors might be interested in ASX shares.

ASX share price in focus

ASX Limited operates Australia’s primary national securities exchange. This includes the provision of securities exchange services, derivatives exchange services, central counterparty clearing services, and registry, settlement, and delivery-versus-payment clearing financial products.

The company provides access to a variety of different products, including shares, futures, exchange traded funds (ETFs) managed funds and real estate investment trusts (REITs).

ASX operates at the heart of the Australian financial markets. It oversees compliance for listed companies and aims to promote a high standard of corporate governance and a fairer playing field for retail investors.

The case for ASX tech shares

The S&P/ASX200 Info Tech Index (ASX: XIJ) has returned 13.55% per year over the last 5 years. That compares to the average of all ASX sectors of 3.75% over the same period. So, here are some of the reasons that investors have been flocking to ASX tech shares.

High Margins

Technology companies tend to have much better margins than more ‘traditional’ brick-and-mortar businesses. That is, they tend to be more profitable.

The simple reason is that they usually have low marginal costs (like distribution costs) and low overhead costs (things like plant and equipment).

In their last annual report, ASX reported gross margins of 96.20% and an operating margin of 72.40%.

Recurring revenue

The second reason is that a feature of many tech companies is their recurring revenue. You’ve probably heard the term ‘software-as-a-service’ (SaaS) – this is when companies package their software as a service that customers pay for access to on a monthly or annual basis.

This is a great alternative to selling your software as a product (a one-off payment) because it can smooth revenue across the year and make profits more predictable over time.

Global scale

The third reason investors love tech businesses is because of their global reach. If you have a brick-and-mortar business or sell physical products, your potential customer base can be limited by reach, regulation, or logistics. For example, if you sell food items, trying to sell into a foreign market means dealing with packaging rules, biosecurity regulations, and tariffs or quotas.

Software on the other hand can usually be downloaded by anyone with an internet connection at the click of a button. It’s easy to ‘move’ across borders, opening up markets that may not have been available to a product-based business. Basically, a bigger customer pool tends to mean more customers.

ASX share price valuation

As a growth company, one way to put a rough forecast on the ASX share price could be to compare its price-to-sales multiple over time. Currently, ASX Ltd shares have a price-sales ratio of 7.78x, compared to its 5-year average of 8.12x, meaning its shares are trading below their historical average. Please keep in mind that context is important – and this is just one valuation technique. Investment decisions can’t just be based on one metric.

The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets! Both of these models would be a better way to value the share price.

$50,000 per year in passive income from shares? Yes, please!

With interest rates UP, now could be one of the best times to start earning passive income from a portfolio. Imagine earning 4%, 5% — or more — in dividend passive income from the best shares, LICs, or ETFs… it’s like magic.

So how do the best investors do it?

Chief Investment Officer Owen Rask has just released his brand new passive income report. Owen has outlined 10 of his favourite ETFs and shares to watch, his rules for passive income investing, why he would buy ETFs before LICs and more.

You can INSTANTLY access Owen’s report for FREE by CLICKING HERE NOW and creating a 100% FREE Rask Account.

(Psst. By creating a free Rask account, you’ll also get access to 15+ online courses, 1,000+ podcasts, invites to events, a weekly value investing newsletter and more!)

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Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.

5%+ in passive income

Owen Rask’s investing report available

With bond ETFs like ASX:IAF and the S&P 500 riding high, now could be one of the best times to start earning passive income from a portfolio of shares and ETFs.

In this free analyst report, our Chief Investment Officer, Owen Rask, names 10 ASX stocks and ETFs to watch.

Unsubscribe anytime. Read our TermsFinancial Services GuidePrivacy Policy. We’ll never sell your email address. Our company is Australian owned.

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