ASX 200 tech update: Are WAAAX shares a buy?

The top 5 ASX 200 tech superstars, collectively known as 'WAAAX', include companies like Afterpay Touch Group Ltd (ASX: APT) and Appen Ltd (ASX: APX). Are they a buy?

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Our beloved WAAAX stocks have performed strongly in light of the ASX 200 looming near 11-year highs. Is this a possible buying opportunity for Australia's best and brightest tech stocks?

WiseTech Global Ltd (ASX: WTC)

WiseTech Global is a provider of software solutions to the global logistics industry. The company's technology is used by 38 of the top 50 global third-party logistics providers such as Toll, UPS and FedEx. The WiseTech share price has gone gangbusters on the back of its high growth outlook and strategic acquisitions.

In the company's recent investor conference in June, it cited FY19 revenue to grow 47–53% to $326–339 million and FY19 earnings before interest, tax, depreciation and amortisation (EBITDA) to rise 28–35% to $100–105 million.

While I do not question WiseTech's software solutions and growth capabilities, there is a clear mismatch in growth vs. valuation. The company boasts a $9 billion market cap with FY19 figures of approximately $100 million in EBITDA and $23 million in profit. This places the company at a price-to-earnings (P/E) ratio of around 165. WiseTech is looking technically bullish, but I would rather place my money in the latter tech stocks that have a valuation closer to earth.

Altium Limited (ASX: ALU)

Altium is looking promising leading into earnings season. The printed circuit board (PCB) and electronics producer is gaining momentum and sustainable growth from its operations in China and Europe. The company has stated that it is firmly on track to achieve its $200 million revenue target by 2020.

However, this would place the company at 23 times today's capitalisation given 2020 revenue! While the valuation is eye watering, I am a big fan of its technology and its focus on transitioning from market leadership to market dominance in the PCB industry.

Afterpay Touch Group Ltd (ASX: APT)

Afterpay is one of the most traded stocks on the ASX, even sometimes exceeding trade volumes of the Commonwealth Bank of Australia (ASX: CBA). As Afterpay receives a lot of attention and media content, I will keep my opinion short, sharp and to the point.

The market is well aware of Afterpay's growth capabilities, along with its risks (in terms of new competitors and regulation). The Afterpay share price has been volatile, but is showing early signs of stability after dropping 15% from its June highs. At current prices, it's not bad in terms of risk/reward, but it could go either way.

Appen Ltd (ASX: APX)

Appen is my favourite tech stock. The machine learning and artificial intelligence space is in its early days with infinite growth opportunities. The company highlighted explosive growth in its HY19 results with a 119% increase in revenue and a 148% increase in net profit after tax (NPAT). With an arsenal of products surrounding search categorisation, speech recognition and data annotation, as well as a new machine-learning software acquisition, I am confident that Appen outshines the rest in growth capabilities, innovation and better risk/reward.

Xero Limited (ASX: XRO)

When the Xero share price soared 10% on the announcement that it had delivered 36% operating revenue growth, positive free cash flow and 31% growth in subscribers back in May, I was quite surprised.

Xero has been a strong trending growth stock while currently sitting on price levels that are not too extended. While I wouldn't be in a rush to buy Xero stock, it does have a place on my watchlist as one of the most reliable growing tech companies.

Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of WiseTech Global. The Motley Fool Australia owns shares of AFTERPAY T FPO, Altium, Appen Ltd, and Xero. 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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