3 reasons why growth investors love ELMO Software Ltd

Find out why growth investors are excited about ELMO Software Ltd (ASX:ELO) and the 3 other tech shares that could be long term winners.

| More on:
a woman

You鈥檙e reading a free article with opinions that may differ from The Motley Fool鈥檚 Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

ELMO Software Ltd (ASX: ELO), the high flying small cap tech company has reaffirmed its upgraded FY 2018 guidance in its quarterly update today with acquisitions boosting the company's performance for the quarter.

The company announced that:

  • Pro forma SAAS revenue for the year is expected to be $30 million, up 89% compared to FY 2017
  • EBITDA for the year of $6 million is expected, which is 368% higher than FY 2017
  • Cash receipts of $7 million for the last quarter are 46% higher than the prior corresponding period

While the above figures include the acquisitions of Sky Payroll and Pivot Software, growth investors will still be excited by Elmo for the following reasons.

  • Founder led.Co-founder Danny Lessem owns a significant portion of the company and his interest are likely to be aligned with shareholder interests.
  • Scalable business model. The company's cloud based HR and payroll software can be replicated to more clients at a lower marginal cost which drives up profit margins.
  • Strong growth. The company has achieved strong organic growth which has been supported by the bolt on acquisitions of Sky Payroll and Pivot Software


Despite the strong growth, there are some risks to investing into Elmo. One risk is that the market tends to build in expectations of further growth into the share price which can result in the share price dropping when those expectations are not met.

One mitigating factor is that Elmo has very little debt and significant amounts of cash to back up its operations.

Foolish takeaway

I think Elmo would be a good addition to a diversified growth portfolio along with聽聽SEEK Limited (ASX: SEK),聽Xero Limited (ASX: XRO) and聽Bravura Solutions Ltd (ASX: BVS).

If you like the idea of investing into new technologies then you need to read this report on a new technology that could reap massive profits for investors in the years to come.

Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned. You can follow Kevin on Twitter @KevinGandiya. The Motley Fool Australia owns shares of and has recommended ELMOSFTWRE FPO. The Motley Fool Australia owns shares of Bravura Solutions Ltd and Xero. The Motley Fool Australia has recommended SEEK 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 Scott Phillips.

More on 鈴革笍 Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more

woman holds sign saying 'we need change' at climate change protest

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
鈴革笍 Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
鈴革笍 Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more

asx investor daydreaming about US shares
鈴革笍 How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more

鈴革笍 Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more