WiseTech Global Limited (ASX: WTC) hit a record high of $20.54 on Wednesday – up an eye popping 31.33 % on the day. This takes the company’s valuation to $4.7 billion. This was on the back of its 2018 results, showing a 44% increase in revenue to $221.6 million and a 45% increase in EBITA to $78 million. The company is no doubt priced to perfection at about 150 x earnings. However, it’s not current earnings investors are looking at. Investors are clearly focused on the growth prospects of the company and I think the narrative here is…
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WiseTech Global Limited (ASX: WTC) hit a record high of $20.54 on Wednesday – up an eye popping 31.33 % on the day. This takes the company’s valuation to $4.7 billion.
This was on the back of its 2018 results, showing a 44% increase in revenue to $221.6 million and a 45% increase in EBITA to $78 million.
The company is no doubt priced to perfection at about 150 x earnings. However, it’s not current earnings investors are looking at. Investors are clearly focused on the growth prospects of the company and I think the narrative here is compelling.
WiseTech has grown revenue 115% since 2016. As WiseTech’s CEO noted: “the company is now accelerating the flywheels” in terms of its global growth. The company has a sticky business, with annual customer attrition rate of less than 1%.
Like Xero Limited (ASX: XRO), WiseTech is fast becoming the dominant global player in its industry. Its CargoWise flagship product is used by 34 of the world’s top 50 third-party logistics providers. Its software is used in 130 countries by over 8,000 customers.
The appetite for global growth and market dominance is something I really appreciate. Since 2017, WiseTech has acquired 15 founder-led software vendors which have delivered the company strong positions in countries such as Brazil, Ireland, France and Germany.
The company has a goal of acquiring vendors which will give it 90% involvement in the world’s manufactured trade flow. This will provide enormous scope to add additional services such as forecasting and AI into the product mix.
The company is projecting another strong FY2019 with projected revenue of $315 million – $325 million and EBITA of $100 million – $105 million.
What I also like about WiseTech is the massive spend on R&D at around $76 million in 2018. This R&D provided over 550 product enhancements and new features for CargoWise in 2018, which clearly contributed to the impressive customer retention figures.
This is a company that is priced high and it’s not a buy for those looking to make a quick dollar. However, the ASX is home to very few companies that can lay claim to be truly world best in industry – some of these are Xero, CSL Limited (ASX: CSL) and BHP Limited (ASX: BHP).
Generally, being world’s best in class and market leader translates to better-than-average returns to investors. And this explains why investors were so keen to get a hold of WiseTech shares on Wednesday.
Price Earnings (PE) ratio is one way of evaluating a business. However, for a business like WiseTech which is growing rapidly and fast becoming the global dominant player in its industry it’s useful to look at metrics such as revenue growth, customer retention rate, global footprint and further scalability.
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Motley Fool contributor Matt Reynolds owns shares of WiseTech Global. 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 Scott Phillips.