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Why Software as a Service (SaaS) shares have defensive attributes

The technology sector of the ASX has a lot of exciting options. There are many companies that are quality investment ideas because of how much growth they can achieve.

Some of those companies have achieved market-leading status in Australia and New Zealand, perhaps even on a global scale.

Technology companies are good growth options because of how easily they can expand. Once a company has developed the software and it has the necessary infrastructure for customers then it can quickly roll out the product for little additional cost. Whereas, for example, furniture companies have to make the product, ship it and store it.

Xero Limited (ASX: XRO) has already done the groundwork of setting up its software, a lot of the new revenue now falls straight to the bottom line as it attracts new business owners and accountants, it’s growing particularly well in the UK.

Altium Limited (ASX: ALU) has developed its various software offerings and now it only needs to make incremental changes. It is growing globally and the ‘Internet of Things’ growth will continue to benefit the technology stock.

Citadel Group Ltd (ASX: CGL) has created and acquired various software which it can use to win over other closely-related professions or government bodies.

Software as a Service (SaaS) companies have a lot a growth positive factors to them. But they’re also quite defensive.

Businesses pay Xero a monthly subscription fee, that’s great for cashflow. Businesses need to continue to do their accounting for management reporting, financial reporting and tax returns regardless of whether the business has had a good year or not.

Government bodies will continue to need software and make decisions whether the economy is booming or stagnating, which should mean reliable revenue for Citadel.

The technological change of the world will continue to happen no matter what the world’s GDP figures are, Altium is one of the beneficiaries of this on the ASX.

Foolish takeaway

SaaS companies can offer investors an impressive growth trajectory and perhaps defensive profit profiles as well. There are other examples such as Gentrack Group Ltd (ASX: GTK), Hansen Technologies Limited (ASX: HSN) and WiseTech Global Ltd (ASX: WTC).

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Motley Fool contributor Tristan Harrison owns shares of Altium. The Motley Fool Australia owns shares of Altium, Citadel Group Ltd, Hansen Technologies, WiseTech Global, and Xero. The Motley Fool Australia has recommended GENTRACK FPO NZ. 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.

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