On a day when the ASX shed $30 billion, WiseTech Global Ltd (ASX: WTC) and Corporate Travel Management Ltd (ASX: CTD) were amongst the few companies whose share prices actually finished Wednesday higher. Corporate Travel Management gained a touch over 3%, while WiseTech was up 2.29%.
This is a pleasing result for shareholders in both companies, who have seen their holdings savaged over the last couple of months. Growth stocks in the health and technology sectors were hit especially hard in October, and WiseTech's share price dropped over 25% over the course of the month. Other market darlings like Afterpay Touch Group Ltd (ASX: APT), Appen Ltd (ASX: APX) and CSL Limited (ASX: CSL) also took a hammering.
But WiseTech and its shareholders will hope that the small gains seen today, under particularly tough conditions, could be a sign that the market is showing renewed faith in the company. And it has shown faith in WiseTech before – as recently as August WiseTech's share price shot up over 50% in two days as a reward for its surprisingly strong FY18 financial results.
Revenues for the year were up 44% to $221.6 million, EBITDA was up 45% to $78 million, and NPAT was up 28% to $13.9 million. And there is no reason to think that this strong performance can't continue into FY19. Since the release of the FY18 results, WiseTech has announced a number of new acquisitions, most recently Swedish customs solutions provider CargoIT. The company has previously stated its intention to position itself as a logistics and supply chain management provider for European companies having to deal with the complexities of international trade post-Brexit.
WiseTech even recently upgraded its FY19 guidance. It now expects revenues for FY19 of between $320 million and $333 million and EBITDA of between $102 million and $107 million. This represents high double-digit growth.
Corporate Travel Management also had a particularly difficult end to the month, but for very different reasons. Its share price tumbled almost 30% in a matter of days after it came under attack from Sydney-based hedge fund VGI Partners. The hedge fund circulated a 176-page report detailing perceived weaknesses in Corporate Travel Management's business. The hedge fund continues to hold a significant short position in the company – meaning it believes the Corporate Travel Management share price has further to fall.
The damage to Corporate Travel Management's share price was so swift and severe that the company placed its shares into a trading halt at the end of October as it scrambled to put together a response to VGI's claims. Corporate Travel Management rejected a number of the assertions made in the VGI report, particularly that a change in its revenue recognition policy had materially overstated its FY18 earnings.
Whether or not the VGI claims have merit, the report definitely left Corporate Travel Management shareholders rattled, especially after they had seen the company's share price surge to an all-time high of $33.87 in September. After the VGI attack Corporate Travel Management is trading back down at $22.90, only slightly above the 52 week low of $19.20 it hit last week.
Foolish takeaway:
The attack from VGI certainly caught the market off-guard, and the fact the hedge reportedly increased its short position in Corporate Travel Management as recently as last week won't ease investor concerns. An article in the Australian Financial Review last Monday stated that Morgan Stanley had cut its price target for the stock in light of the VGI report, down from $35 to $27. But that still represents a significant premium on its current price.
To me, WiseTech seems like the safer bet out of these two growth stocks given the current conditions. It appears as though shares in the logistics software company were oversold in the tech stock rout in October. If it can deliver on its growth forecasts then I anticipate its share price recovering strongly in FY19.
