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LiveTiles is down 10% this year. Here’s why I still think it’s a buy

Tech company LiveTiles Limited (ASX: LVT) hasn’t been making too many waves on the ASX this year. Despite racing to a 52-week high of 61 cents back in April, the small cap’s share price is actually down a little over 10% overall for 2019, valued at just 30 cents as at the time of writing. But there are plenty of good reasons to give LiveTiles another look.

What does LiveTiles do?

LiveTiles is a software company that specialises in creating intranet portals, internal dashboards, and online working environments for its corporate clients. It uses machine learning and artificial intelligence to deliver richer analysis of employee behaviour, with the stated purpose of increasing engagement, productivity, and ultimately job satisfaction.

And while it may not be reflected in its share price performance this year, LiveTiles is delivering some solid financial results. According to its most recent quarterly announcement for the three months ending 30 September 2019, the company’s annualised recurring revenues have soared 131% higher over the last year to $42.9 million. It also brought in record customer cash receipts for the quarter of $8.5 million.

And it marked the 5th consecutive quarter in which the company’s net operating cashflow had improved. Bear in mind that its net operating cashflow was still an outflow of $5.3 million – but it is nonetheless headed in the right direction.

Its partnership with technology juggernaut Microsoft is also opening up new opportunities for LiveTiles, with the company also recently announcing that it had been invited to present at Microsoft’s largest customer event, “Ignite”. The event, held in November in Florida, gives LiveTiles the opportunity to promote its brand to up to 25,000 existing Microsoft customers.

LiveTiles is also involved in a co-selling arrangement with Microsoft in 39 countries. The company’s core software is capable of being deployed within Microsoft’s communication and collaboration platform, Microsoft Teams. According a recent LiveTiles announcement, over the last 2 years Microsoft’s co-selling programs have generated US $13.9 billion in revenues for its various key partners. So it’s fair to say that this represents a potentially lucrative opportunity for a young company like LiveTiles.

Along with other emerging technology companies like ELMO Software Ltd (ASX: ELO), which delivers HR solutions, and Dubber Corp Ltd (ASX: DUB), which specialises in corporate communications management, I think LiveTiles is an exciting young player with a potentially lucrative growth runway ahead of it.

So, why hasn’t the LiveTiles share price taken off yet?

Personally, I think that the market’s lukewarm reaction to LiveTiles says something about the current state of growth investing more broadly. Recently, it feels like some of the sheen has come off the big-name ASX market darlings. Tech growth stocks WiseTech Global Limited (ASX: WTC) and Afterpay Touch Group Limited (ASX: APT) have both wobbled after coming under attack from short sellers who claimed that they were wildly overvalued.

This year has also been a tumultuous one both politically and economically, with trade wars and fears of a potential global recession making share investors justifiably nervous. More uncertainty around the future state of the global economy can make analysts and other market participants doubt the valuations they place on companies, which can cause extreme volatility in share prices.

But the best thing that small and growing companies like LiveTiles can do is simply keep performing. As long as LiveTiles can continue to track towards profitability, it’s inevitable that its share price will respond.

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Rhys Brock owns shares of AFTERPAY T FPO, Dubber Ltd, LIVETILES FPO, WiseTech Global and Elmo Software. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Elmo Software. The Motley Fool Australia owns shares of and has recommended Elmo Software. The Motley Fool Australia owns shares of WiseTech Global. The Motley Fool Australia has recommended LIVETILES FPO. 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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