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Is Mitula Group Limited the best new tech stock on the ASX?

Credit: Jason Howie

You remember your high school graduating class right? There were those who had always attracted attention and praise, the exceptionally clever ones with big ideas and those quiet achievers who flew under the radar but always surprised on the upside.

Well the IPO market is no different. Some businesses foreshadow their listing with much media attention and fanfare, while others bring the promise of huge breakthroughs on pre-revenue business models.

A small percentage of companies that list are already established businesses with strong track records which have neither the hype nor the blue sky promises of the first two attached to them.

And looking back, it’s a good bet that the quiet achievers with good track records are the ones who outperform more often in the long run. I think the same is true for the IPO market, and have highlighted what I consider to be the best businesses that conducted their IPOs this year.

Mitula Group Limited (ASX: MUA) is a little-known stock that many Australians should be comfortable investing in. That is because Mitula shares many of the characteristics of the fantastic “list stocks” of the ASX like Carsales.com Ltd (ASX: CAR) and REA Group Limited (ASX: REA), which have been incredible investments for those who understood the simplicity of the business model early. In fact, Mitula even has highly credentialled ex-REA Group boss and noted angel investor, Simon Baker on board.

Mitula provides what is called vertical search services to consumers. That means, for example that if you were searching online for a car to buy you would search the make and model on Mitula. Why would you not just search on Carsales.com? Because Mitula will display the results from Carsales, as well as its competitors, CarsGuide and Drive, as well as many smaller sites.

That means that customers are not disadvantaged by only being able to see inventory from any one site at a time. The company also offers the same services for real estate and jobs, which together with cars, form the three biggest classifieds categories in the world. In essence, Mitula collates all of the listings available in your search category, and puts them in one place for you to browse. Sound useful? It is.

The company operates on global scale in 38 countries, and generates money every time a searcher clicks on a link on the website that takes them to the place where the car / house / job is listed. The company has over 14,000 advertisers, 270 million listings and just under 50 million monthly visitors, and has exceeded its prospectus forecasts.

The fantastic part is that the company is already profitable, with revenue growing by over 93% in 2015, while profits before IPO costs grew by a market-leading 61.5%. The company also earns the majority of its revenue overseas, another big tick as the Australian dollar falls.

Baby Bunting Group Limited (ASX: BBN) is a completely different type of business that began life as a family run baby goods retailer, and now has plans to become a nationally recognised brand.

The business operates large format baby goods stores, with everything from prams to furniture and nappies under one roof, with each store boasting around 6,000 stock keeping units.

The baby goods market is worth $2.3 billion annually, and is not subject to strong price deflation as more weight is placed on safety and trustworthiness rather than price. It is also insulated from online-only competitors, as parents typically prefer a more “hands on” experience when buying goods for their newborns. Baby Bunting currently has 33 stores, but has identified that there is scope for over 70 nationally, as the market is highly fragmented.

In this way, Baby Bunting can be seen as similar to Dan Murphy’s or Bunnings, which took a “big box” strategy to a market segment and took market share from much smaller retailers on their way to becoming dominant national players. While the market for baby goods is much smaller than that of alcohol or hardware, Baby Bunting has ample room to grow, and has already handsomely rewarded those shareholders who got in early.

Both Mitula and Baby Bunting have strong prospects in 2016, but the market is yet to wake up to Mitula, which is the reason I expect that when it does, Mitula will outperform not only Baby Bunting, but many of the other businesses on the ASX.

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Motley Fool contributor Ry Padarath has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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