As a growth investor, tech stocks are at the top of my watchlist. This means I always have a keen eye on our nation's WAAAX shares. If you haven't come across this term before, WAAAX is to Australia what the FAANG is to the US. If your portfolio held these five stocks, you'd be up 64.2% in the year to date:
• WiseTech Global Ltd (ASX: WTC): Up 34.6% YTD for a $22.92 close yesterday.
• Appen Limited (ASX: APX): Up 90.2% YTD for a $24.34 close yesterday.
• Altium Limited (ASX: ALU): Up 47.8% YTD for a $31.94 close yesterday.
• Afterpay Touch Group Ltd (ASX: APT): Up 120.1% YTD for a $26.43 close yesterday.
• Xero Ltd (ASX: XRO): A 28.2% increase YTD for a $53.77 close yesterday.
WiseTech
WiseTech has been performing modestly with a host of analysts noting the stock price is overvalued. It has a 136x P/E ratio which gives investors cause to expect only the best. The company's recent share purchase plan suggests that management believed its shares were overvalued. Furthermore, insiders have been selling off their stakes.
While I'm very bullish on the company's product and management team in the long-term, perhaps now is not the time to buy these high-flying shares.
Appen
Appen has maintained its debt levels comfortably, and its stellar annual growth rate of 25% is only expected to increase in a market where its data capabilities are highly in demand.
Appen has strong fundamentals. Its ROE sits at 30% which is 15% higher than the average in the IT industry. It is also expected to double its EPS in just 3 years. Despite the 62x PE ratio, my bet is its price will continue rising throughout 2019 particularly in anticipation of FY results.
Altium
In FY18, Altium's net profit grew 34% to $US37.5 million, while it grew 22% in the year prior.
What I like about this SaaS solution is that its business model allows around 60% of its revenue to be recurring. It also has a strong net cash position of $US58 million on its balance sheet.
Altium is scaling aggressively in a market where PCBs are growing ever more critical. Its 90x P/E ratio demonstrates strong investor sentiments and rightly so. I have confidence that Altium can hit its target of 100,000 Altium Designer subscribers and annual revenue of US$500 million by 2025.
Afterpay
I have talked about Afterpay countless times this year. Each week another analyst comes out saying this buy-now pay-later company is overvalued, yet strong investor confidence continues hiking up its market cap.
Its UK expansion is in full speed ahead on the back of strong market penetration in the US. It's adopting the name Clearpay in the European market as it is the quickest way to get to market.
Considering it isn't yet breaking even, Afterpay is operating on a high 39.6 price-to-sales ratio. However, I expect the company to beat market expectations in its FY earnings.
Xero
Xero is the leader in cloud accounting across Australia, New Zealand and the UK. It has growth 62% year-on-year in North America, making headwinds in Hong Kong, Singapore and even South Africa.
Based on 2020 earnings, Xero is expected to be trading on a 177x multiple, far ahead of its WAAAX peers. This means that investors are willing to dish out a lot of capital to buy into Xero's profits and its attractive 83% gross margin. Given strong penetration across global markets, this company is poised for growth.
If these tech stocks aren't for you but you're interested in exploring new growth verticals, make sure to check out this little-known ASX stock.
