Tech boom 2.0?

Will this all end in tears, or is it different this time?

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The rise in popularity of tech stocks is gathering momentum, but will it all end in tears like it did more than a decade ago?

Following the successful debut of currency transfer firm OzForex (ASX: OFX) and the meteoric rise of freelancing website Freelancer (ASX: FLN), a number of smaller technology firms are looking at listing on the ASX. OzForex listed at a share price equivalent to 20 times earnings, but was heavily oversubscribed. Freelancer issued shares at just 50 cents, but saw its shares go as high as $2.60, before settling at around $1.50 currently.

We've also seen New Zealand cloud-based accounting firm Xero (ASX: XRO) double its share price in recent weeks and over the past six months has tripled in value, despite not making a profit.

Now Pepperstone Financial, an online currency trading broker is looking to go public, and is considering a listing on the ASX. In just three and a half years, Pepperstone has garnered 25,000 clients and is generating $29 million in profits from revenues of just $34 million, over the twelve months to June 2013. The company expects to double its revenue and earnings this financial year, which could see the company valued by the market at around $600 million, and potentially over $1 billion.

But it's not just new companies coming to market that are hot. Several small tech firms already listed on the ASX have seen their share prices skyrocket. Mobile payments provider Mint Wireless (ASX: MNW) has seen its share price saw by 67% since the end of May 2013, while shares in Mobile Embrace (ASX: MBE), a company that provides mobile communications, payments, marketing and applications have risen 923% over the same period.

While some of these companies provide a disruptive presence to the existing players in their markets, we don't expect the leaders in their markets to lie down without a fight.

Foolish takeaway

Investors should be cautious when approaching 'sexy ', internet businesses to invest in. As always, it's important to do your homework and make sure that the company has quality management, decent products, a strong balance sheet, growing earnings and the ability to generate sustainable profits.

Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »