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3 top software shares for your growth portfolio

Credit: Printed Circuit Corporation.

You only need to look at a list of some of the world’s wealthiest people to see what a huge value creator the software sector has been.

While the ASX isn’t home to many “household names” such as Microsoft, the sector does still have many appealing businesses (many of them with global operations) which could be worth owning.

Here are three top software shares that I’d suggest you keep an eye on.

WiseTech Global Ltd (ASX: WTC) has developed software solutions for the logistics industry. This software enables users to undertake complex logistics transactions across multiple users, countries and languages.

Based on analyst consensus forecasts from Reuters, sales will rise from $102 million in financial year (FY) 2016 to $137 million in FY 2017. Meanwhile, earnings per share (EPS) are forecast to jump from 4.9 cent per share (cps) to 9.2 cps, implying an FY 2017 price-to-earnings (PE) multiple of nearly 56 times.

Link Administration Holdings Ltd (ASX: LNK) is a leading provider of outsourced administration services to the corporate market and increasingly to superannuation funds as well.

According to Reuters data, sales are forecast to increase from $767 million in financial year (FY) 2016 to $792 million in FY 2017. Meanwhile, EPS are expected to rise from 27.8 cps to 31.9 cps, implying an FY 2017 PE multiple of 27 times.

Technology One Limited (ASX: TNE) has developed a group of enterprise business solutions which are targeted towards a range of industries including the education and retail sectors.

Reuters consensus forecasts show sales growing from $244 million in financial year (FY) 2016 to $274 million in FY 2017. Meanwhile, EPS are expected to expand from 13.1 cps to 15.3 cps, implying an FY 2017 PE multiple of 34.5 times.

Foolish takeaway

One of the difficulties when investing in the software sector is coming to grips with the prices many of these stocks trade at. These high market valuations reflect the better-than-average growth profiles of successful software companies and their above-average business models.

To invest successfully in the software sector thus requires an investor to have an impeccable insight into a firm’s growth potential to justify paying these high prices.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia owns shares of WiseTech Global. 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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