Can you afford to ignore Australia’s booming tech sector?

The ASX made headlines last week when it sensationally rejected the request of Guvera to list its shares on the ASX with a view to protecting the interests of retail investors.

While there is an argument that suggests the ASX perhaps should have allowed the music streaming company to list its shares on the market, there are also plenty of reasons why it would have made for a risky investment, which had the potential to go wrong for many investors – particularly with a potential valuation north of $1 billion.

You see, compared to that potential valuation, Guvera had minimal revenue. It was also losing money and was essentially reliant on raising money from investors in order to repay its debts. In other words, instead of becoming a new tech stock on the ASX, the company risks becoming obsolete.

While controversial, the ASX felt it was in the best interests of investors to block Guvera’s move onto the market, and this may have set a precedent for other small tech-hopefuls hoping to raise money in the market as well.

Indeed, there are many companies on the ASX right now with exciting products and prospects, yet little in the way of revenue and earnings. Some ultimately succeed while for others, it proves to be nothing more than a dream.

Take 1-Page Ltd (ASX: 1PG) and Reffind Limited (ASX: RFN) as two examples. Shares of both companies skyrocketed shortly after their respective initial public offerings, but have since crashed back down to earth due to poor revenue and cash flow growth thus far. There were also justifiable concerns regarding their valuations.

For the record, I bought (and still own, although perhaps not for much longer) shares of 1-Page as a speculative bet, meaning it makes up a very small portion of my overall portfolio. However, there is little doubt that some other investors have recognised far greater losses on both of those companies mentioned above, while others potentially would have bought Guvera shares unaware of the risks.

With Guvera in mind, The Australian Financial Review recently ran a piece describing how the ASX is in danger of developing a bad reputation for its technology shares based on their speculative and dangerous nature.

Yes, there are some companies listed on the ASX (not necessarily those two mentioned above) which perhaps are too dangerous for most retail investors, but it’s also important to note that there are also plenty of great tech shares that are listed on the ASX which could earn great returns for investors over the coming years.

Indeed, XERO FPO NZX (ASX: XRO) is one such example. Although the company isn’t profitable just yet, it is investing heavily in acquiring new customers and developing its cloud-based accounting platform. The product is very promising and has huge international growth prospects which could make the shares a great pick-up even at today’s price levels.

There’s also iSentia Group Ltd (ASX: ISD) – a media monitoring business – as well as Catapult Group International Ltd (ASX: CAT) and Hansen Technologies Limited (ASX: HSN), which all deserve a closer look today.

Foolish takeaway

There are many hazards in the technology sector which you would be wise to avoid. But rather than getting bogged down in how ‘risky’ the tech sector may seem it’s worth investigating some of the better opportunities out there.

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Motley Fool contributor Ryan Newman owns shares of 1-Page Ltd, Hansen Technologies, iSentia Group Ltd, and Xero. The Motley Fool Australia owns shares of Hansen Technologies and 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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