The Motley Fool

Is the Aconex Ltd share price cheap?

Shares in cloud-connected construction software business Aconex Ltd (ASX: ACX) dropped 1.6 per cent to $4.89 today after the group provided an update at its 2017 AGM.

The former market darling has been on a wild ride since its 2014 IPO with shares shooting up to $8.29 in July 2016 before a profit downgrade and series of disappointing updates saw shares fall to $3.08 early in 2017.

It appears the market is finding the stock a little easier to value now with Aconex’s management team forecasting revenue growth of 15%-19% in FY 2018 alongside undetermined EBITDA growth.

Over the “medium-to-long term” management maintained its revenue growth targets of 20%+, although given its track record in meeting forecasts since its IPO investors should take these loose forecasts with a pinch of salt.

In FY 2017 Aconex delivered EBITDA of $15 million on revenues of $161.2 million with the company currently ascribed a market value of close to $1 billion. This puts mid-2016’s market value around $1.6 billion on 10x revenues or more than 100x EBITDA into perspective and shows how investor excitement over tech shares in the software-as-a-service space can sometime lead to excessive valuations.

On 6x trailing sales, Aconex still looks expensive using conventional SaaS business valuation metrics and today’s investors will expect double-digit compound annual growth rates in the bottom line over the years ahead. However, given its mixed track record as a public company and valuation I’m not a buyer of Aconex shares.

Tomorrow, cloud accounting business XERO FPO NZ (ASX: NZX) will hand in its full year results with its stock up 80% over the past year. It’s a business I like, but I wouldn’t suggest considering the buying shares until being able to digest the numbers revealed in tomorrow’s update.

The Disruptors: 3 Revolutionary Aussie Companies to Back for 2018

We’re living in one of the most exciting times in investing history. Innovation and a booming culture of entrepreneurship are constantly creating new companies with the potential to make forward-thinking investors very rich. Now more than ever, one small, smart investment could make a huge difference to your wealth.

That’s why at The Motley Fool we’ve been scrutinizing the ASX to uncover the kinds of companies that we believe could turn into the next Cochlear or REA Group.

We’ve found three exciting companies that we believe re poised to perform in the new year. Click here to uncover these ideas!

Motley Fool contributor Tom Richardson owns shares of Xero.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of ACONEX FPO 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.

NEW. Five Cheap and Good Stocks to Buy in 2019…

Our Motley Fool experts have just released a brand new FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.8% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.