Cloud-based software developer WiseTech Global Ltd (ASX: WTC) has enjoyed a stellar run on the ASX In 2017, up 148% from $5.65 at the beginning of the year to close Friday afternoon trading at $14.00.
Its meteoric rise seems to show no signs of slowing either; in the last week alone the share price shot up 10%.
And to cap off its great year, it’s one of the newest companies to be added to the ASX200 – joining the club in December.
WiseTech’s leading product is CargoWise One, a cloud-based logistics software product designed to increase efficiency and productivity by providing companies with greater supply-chain oversight.
All data is stored securely on the cloud, allowing instant access for users at all points in a global supply chain.
This increases transparency and helps to streamline processes for the 7,000 customers that use its services in 125 different countries.
And WiseTech is still investing heavily in developing better quality technology, such as robotics and machine learning processes.
Relative to its revenue, WiseTech invests more in R&D than almost any other company in the ASX200. It also continues to refine its existing products, making 680 enhancements in the 2017 financial year.
So what is driving these gains?
In a word: acquisitions. WiseTech has acquired eleven companies in 2017, three of which were announced in December alone.
It snapped up Australian warehouse management software provider Microlistics on the 13th, and then on the 20th it announced it was also acquiring two Dublin-based European customs solutions providers, ABM Data Systems and CustomsMatters.
According to its CEO Richard White, the integration of the Microlistics business into the WiseTech CargoWise One platform deepens its “warehouse capability” and means it can further increase productivity for its global customers.
White also stated that by acquiring the European customs solutions providers, WiseTech becomes better able to provide logistics and supply chain management services to companies now having to deal with the added complexities of international trade in post-Brexit Europe.
Is the company as strong as the share price suggests?
WiseTech’s 2017 results were pretty impressive. Revenue grew 50% on the prior year to $153.8 million, meeting the upper end of the company’s guidance, and underlying net profit increased by 124%. In addition the 2017 EBITDA of $53.8 million actually beat the company’s own forecast guidance.
WiseTech has forecast its full year 2018 revenues to increase by 30%-37% to between $200 and $210 million, with EBITDA in the range of $71 million to $75 million.
Richard White has also indicated that WiseTech’s M&A activity is not likely to slow down in the future, stating that it has a list of about 100 companies they are considering acquiring.
The danger with WiseTech is that it is overbought by the market. It has been the pick of the young IT software providers this year, outperforming XERO FPO NZ (ASX: XRO), although its shares still climbed 70%.
However, it is currently trading at a little over 128x earnings, which is very high relative to other companies in the IT space like Computershare Limited (ASX: CPU), which trades at 26x earnings, or REA Group Limited (ASX: REA) at 49x earnings.
Xero and Aconex both had negative earnings in 2017, so their PE ratio is not meaningful for comparison.
WiseTech offers investors plenty to be excited about. It’s a growing global business with a focus on building and continually improving its product offering, and its financial results have so far been impressive. It will also continue to garner market interest if it pursues its aggressive M&A strategy.
The only thing to consider is whether their current P/E ratio is sustainable.
But WiseTech is definitely an up-and-comer worthy of inclusion on your watch list for 2018.
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Motley Fool contributor Rhys Brock owns shares of REA Group Limited. The Motley Fool Australia owns shares of and has recommended ACONEX FPO. The Motley Fool Australia owns shares of WiseTech Global and Xero. The Motley Fool Australia has recommended Computershare and REA Group Limited. 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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