Elsewhere, previously popular growth stocks are under pressure. Appen’s stock price has tumbled after losing a key contract with Google, while Redbubble (recently renamed Articore) has seen a downturn in the U.S. retail market after reaching positive underlying cash flow last year. During this period, the company needs to prove that it can accelerate sales growth.
What investors are looking for
Cyan Investment Management’s Dean Fergie said he expects the market to accept conservative forecasts as companies continue to focus on “bending down” and cutting costs from their operations. Ta.
“I think the focus will be on conserving as much capital as possible until there is a little more money available through the stock market or cheaper bonds,” Fergie said.
“If it means holding back growth a little bit, I think that’s a tradeoff that investors are willing to accept.”
Johnson said the market is already focused on tech stocks that show they can combine rapid growth with profitability.
Utility billing platform Gentrack is profitable and growing, with its stock price up 167% over the past 12 months.
“If I can put myself in that category, [of profitable and fast-growing]If you do that, the stock market will reward you very highly,” Johnson said.
He named mining software company RPM Global and education and workforce provider ReadyTech as two stocks that could soon become market darlings.
Lucas Good, portfolio manager at IML, named Ladytech one of the stocks to watch this quarter, calling it a “mini-TechnologyOne” after the fast-growing enterprise software company.
“This is a very high-quality, founder-led, vertical SaaS.” [software as a service] Businesses are moving up the food chain and into the enterprise space,” he said.
“We’re excited to see if they were able to reel in even bigger fish, especially in the TAFE sector.”
But Mr Good said it could be a tough reporting season for investors in the Australian Stock Exchange’s most highly valued tech companies, including WiseTech, Zero and Altium.
The prices these companies are trading at are up about 30% from 12 months ago, and Mr Good said there could be some unpleasant surprises.
“Technology companies, especially software companies, are highly valued in part because there is a perception that recurring revenue and a stable customer base provide greater certainty of earnings,” he said.
“However, this often leads to investor complacency, which can lead to negative windfall returns and cause a strong stock price reaction.
“The implicit expectations for the share prices of big software stocks like Xero, Wisetech, and Altium look very high given that this group has not been spared the past few years of poor profits.”