The WAAAX basket of stocks has increased 53% during CY20, outperforming the ASX 200 by 66%. But Katie Hudson, Yarra Capital Management’s Head of Australian Equities Research, believes the resilience of this cohort’s revenue has been sorely tested by the pandemic.
The ASX’s biggest technology stocks may be great businesses, but their prices have significantly overshot their worth, according to Yarra Capital Management’s Katie Hudson.
For the calendar year to September 30, the share prices of the WAAAX stocks (WiseTech, Altium, Afterpay, Appen and Xero) have on average grown by 53 per cent, despite analysts revising down these same companies financial year 2021 revenue projections by an average of 6 per cent.
These revenue revisions, Ms Hudon tells AFR Weekend, reveal the lack of revenue durability among these top tech stocks – despite the frequent talk of “stickiness” – and are the reason the stockpicker is underweight in technology.
“The first point to make is these are good businesses with attractive growth, but the debate for us is about the multiples that are attached to them, which focuses on revenue momentum, rather than durability,” she says.
“COVID has been an interesting time to test that issue and we found a number had disruption to their revenue and analysts consistently downgraded their earnings expectations.
“For a number it showed that revenue to a high degree isn’t as recurring [as suggested] and revenue isn’t as durable as the multiples suggest.”
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