Should you buy WiseTech Global Ltd (ASX:WTC) at today’s share price?

WiseTech Global Ltd (ASX: WTC) has been trading at an astronomical valuation in recent times, demanding a price-to-earnings multiple above 120x currently.

However, following WiseTech’s share price plunging 10% over the last week, is the software solutions provider now in buy territory?

Time to invest?

It could be easy to see WiseTech as a missed opportunity following the stock seeing a 110% return in the last 12 months; however, I believe the company may be a good buy at today’s price for growth investors with a long-term horizon. WiseTech has the characteristics of a high-quality company which has the capacity to continue its sturdy growth and expand its market valuation.

CargoWise One is WiseTech’s flagship product, a cloud-based software platform designed to enhance supply chain efficiency through enabling users to seamlessly execute complex logistics transactions and manage their operations in an integrated manner across multiple users, languages, and offices. WiseTech offers CargoWise One through the SaaS – or “software as a service” – model, giving customers 24/7 access to the platform and only charging them based on the modules they use.

This places CargoWise One in the tailwinds of tech’s highest growth area, which is estimated to grow by nearly 28% per annum to reach US$165 billion by the end of 2022, as companies are increasingly moving to the cloud and relying on software solutions to support and optimise their operations.

Some reasons I like WiseTech include:

  • CargoWise One, being a SaaS application, is a highly scalable product which WiseTech can provide to new customers for very little additional costs, giving the company scope to rapidly grow its market penetration while improving its operating margins over time.
  • WiseTech has kept its customer attrition rate below 1% for the last five years, illustrating a high degree of customer satisfaction with the CargoWise One product, which will lead to significant recurring revenues.
  • Despite high levels of M&A and R&D activity, WiseTech maintains prudent financial management, with its balance sheet having more than $121 million of cash currently and debt of only $2.5 million.
  • WiseTech is currently in a phase of extraordinary earnings growth, achieving $78 million of EBITDA in FY18, which is up 45% from FY17. This is likely to be further boosted by its global growth strategy which seeks to rapidly grow the market penetration of CargoWise One through geographical expansion, the acquisition of strategic assets and improving product capability.

Foolish Takeaway

While it’s by no means cheap, for me, WiseTech Global Ltd is up there with NEXTDC Ltd (ASX: NXT), Altium Limited (ASX: ALU) and Afterpay Touch Group Ltd (ASX: APT), as well managed technology companies with sustainable competitive advantages and scope for consistent earnings growth.

It may be worth reflecting on the old adage ‘you get what you pay for’ before snubbing WiseTech at its current valuation, particularly given its tendency to outperform the expectations of the market in earnings season.

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Motley Fool contributor Gregory Burke has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO, Altium, and 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.

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