Is there still time to jump on Aconex Ltd?

Construction collaboration software company Aconex Ltd (ASX: ACX) has seen its share price more than triple since listing on the ASX in December 2014 at $1.90 a share. In mid-afternoon trading, shares were trading at around $6.21.

But there may still be time to jump on board according to some analysts, with Macquarie analysts placing the shares on an Outperform rating. Citi analysts also rate the company highly, with a $6.43 price target, and according to Reuters, of the 8 analysts covering the company, 6 of them think it’s a Buy, with two Holds.

While the valuation at current prices doesn’t appear compelling we think the longer term market penetration opportunity is substantial,” Macquarie analysts said.

With increasing recognition of the benefits of collaboration solutions and technology trends driving increased industry penetration, we see an accelerating shift away from internal systems.

We also note optionality of further accretive consolidation opportunities. Resume coverage at Outperform on a longer-term view.

In mid-February, investors had a chance to pick up shares in Aconex for under $4.00 (they reached $3.79), after the company announced that more than 31 million shares would be released from escrow on February 23, 2016, the day the company announced its half-year results.

It seems investors feared that an additional 31 million shares allowed to be traded on the market would be sold off by the holders, but that doesn’t appear to have happened, and the company’s first half result was a good one.

But like many software-as-a-service (SaaS) companies, Aconex shares aren’t cheap. With a market cap of $1.2 billion, the company earnt $55.7 million in revenues in the first half of the 2016 financial year and reported an adjusted net profit of $3.6 million. In other words, an annualised P/E ratio of 165x and 10.7 times revenues.

For comparison, Xero FPO NZX (ASX: XRO) is trading on an annualised ratio of 11.8x revenues. That suggests that investors see similar potential for Aconex as cloud-accounting firm Xero. They have similar features too, including strong, recurring revenues, both are cloud-based software providers and both have a well-diversified and growing global customer base. Aconex is also leveraged to the massive global construction sector.

One of Australia’s largest ‘traditional’ software companies, Technology One Limited (ASX: TNE), trades on a ratio of market cap to revenues of 6.7x, and has grown revenues at a compound annual rate of 13% over the past 15 years.

Foolish takeaway

There’s no doubt that Aconex is growing strongly, and the recent acquisition of Conject for $96 million is another lever to drive growth and earnings. The only problem is that investors will need to be convinced the company can sustain its strong growth for more than a few years to justify its current price.

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Motley Fool contributor Mike King has no position in any stocks mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia owns shares of Xero. 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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