Of all the ASX shares that banked impressive gains in 2019, the WAAAX group arguably attracted the most attention from growth investors. Made up of WiseTech Global Ltd (ASX: WTC), Appen Ltd (ASX: APX), Altium Ltd (ASX: ALU) Afterpay Ltd (ASX: APT) and Xero Ltd (ASX: XRO), WAAAX has become one of the most exclusive clubs on the ASX – with the status of 'beloved tech darling' seemingly being the main entry requirement.
The numbers are there to back it up too. WiseTech shares are up 45.7% for the year to date. Appen – a cool 82%. Altium shares came in at a 66% gain, while Afterpay banked an eye-watering 151.66%. Xero rounds it out with a yearly rise of 93.9%.
In light of these stellar performances, I think growth investors would all be asking the same thing as we prepare to farewell the year and the decade – what does 2020 hold in store for the WAAAXers?
WAAAX on or WAAAX off?
An important note to make is that although all WAAAX shares have reported double digit growth in revenues, these growth rates haven't matched the 2019 share price rises.
On today's pricing, WiseTech is trading on an earnings multiple (P/E ratio) of 140. Appen is on 55.7, while Altium is at 61.8. Afterpay isn't yet profitable so it doesn't even have a P/E Ratio whilst Xero's current share price represents a laughable 4,382 times earnings.
In my opinion, the only thing keeping all of these companies' share prices at their current level is the anticipation of ever-rising growth numbers and an expectation of further price appreciation.
Don't get me wrong, I love all five WAAAX companies and their business models they employ. I fully expect all to keep growing at impressive rates over the coming years, aided by the tailwind industries they work in.
However, I also personally think that there is a lot more room for downside risk than upside at the current prices. If there was to be some sort of correction or stock market crash in 2020, it's my opinion that all five of these companies would be hit hard. We saw this scenario play out in the correction late last year.
Foolish Takeaway
It's my view that the WAAAX stocks are fantastic companies at unsustainable prices. I don't know what they will do in 2020, but I see more risk to the downside than up and thus am disinclined to invest at the current prices.
