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Is it time to snap up shares in these 2 tech companies?

Last week’s market correction may have left many of you too scared to check on the performance of your portfolios.

And I don’t blame you – most of those companies hit the hardest were high profile tech stocks and market darlings like Afterpay Touch Group Ltd (ASX: APT), which slid 16% lower this week, WiseTech Global Ltd (ASX: WTC), which was down 13%, and Appen Ltd (ASX: APX), which dropped 12%.

But, as often happens after a sharp correction, there was an equally sharp recovery on Friday, with most of the major tech stocks posting some strong gains.

Rather than panic, shrewd investors see these market corrections as good buying opportunities, when shares in growing companies can be snapped up for a bargain. Here are two tech companies with great long-term prospects that could now offer great value for investors.

Appen Ltd

Appen is a software company based in Chatswood, NSW. It provides a diverse range of products and services underpinned by data analytics, artificial intelligence and machine learning. Appen helps its clients collect, annotate and secure their data, as well as develop voice recognition software, social media platforms, chatbots and an array of other technology solutions.

Shares in Appen had been performing extremely well up until the recent correction. Its share price had increased by almost 70% year-to-date as at the beginning of October, but since then it has shed about 16% of its value.

The company had benefited from general excitement for ASX tech stocks – maybe too much so, with an article in the Australian Financial Review published October 7 questioning whether its shares were too expensive and raising concerns that its client base was too concentrated.

But those still bullish on Appen need only point to its financial results.

Revenues for the half year ended 30 June 2018 were $152.3 million, an increase of over 100% on the prior comparative period, while net profit surged 73% to a little over $14 million. Most of the increase came from its “Content Relevance” division, which helps clients “train” their search algorithms using machine learning techniques.

Part of the strong divisional performance was driven by Appen’s November 2017 acquisition of US-based competitor Leapforce. But even excluding Leapforce’s contribution to Appen’s revenues, organic growth was still very encouraging, with home grown revenues for the division up 64% on the prior comparative period to $87 million.

WiseTech Global Ltd

WiseTech is a software developer for the logistics industry. Its leading product is CargoWise One, a cloud-based software 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-plus customers that use its services in 130 different countries.

WiseTech’s share price has been particularly volatile over the last 12 months and it has survived a number of corrections. It has pursued an aggressive M&A strategy – snapping up 11 companies in 2017 alone – but its organic growth has sometimes underwhelmed analysts.

That changed in FY18 however, when the company reported annual revenues of $221.6 million, an increase of 44% on the prior year. Performance across all the key metrics was strong, with EBITDA up 45% to $78 million, NPAT increasing 28% to $40.8 million, and an annual attrition rate of less than 1% for customers using its CargoWise One platform.

The strong result gave WiseTech management enough confidence to forecast revenue growth of between 42% and 47% for FY19, which would see the company pulling in between $315 million and $325 million in sales over the coming year.

Foolish takeaway

When the market is awash in a sea of red it’s easy to feel dismayed. Your first instinct might be to panic-sell to try and cut your losses. And while some companies might be worth getting rid of when conditions turn sour, plenty more still offer great long-term prospects. So my advice is to keep a cool head – and if you’re lucky enough to have some spare cash lying around try and hunt out some bargains.

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Motley Fool contributor Rhys Brock owns shares of AFTERPAY T FPO and WiseTech Global. The Motley Fool Australia owns shares of AFTERPAY T FPO, Appen Ltd, 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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