The ELMO Software Ltd (ASX: ELO) share price has surged more than 12% since the start of the year. Recent analysts and broker coverage consider this high-growth ASX tech stock well-poised to go even higher in 2020.
What does ELMO do?
ELMO is a cloud-based HR and payroll software company that provides clients with a unified platform to streamline employee administration, recruitment, rostering and payroll. The company operates its cloud-based software under a software-as-a-service recurring revenue model, servicing more than 1,100 companies in Australia and New Zealand.
ELMO's services provide clients with an all-in-one platform to manage people, HR processes and payroll. According to management, there is significant headroom for growth in Australia and New Zealand with the total addressable market estimated to be worth around $2.4 billion. At the moment, ELMO is positioned to be the pre-eminent platform provider in Australia and New Zealand with a strong sales structure and marketing strategy.
How has ELMO performed?
Last week, ELMO issued its financial report for the first half of FY20. The report was highlighted by the company's 40.6% growth in cash receipts to $52.4 million for the last 12 months. In addition, ELMO saw annualised recurring revenue (ARR) increase 42.8% to $52 million and recorded its largest second quarter cash receipts in the first half of FY20.
ELMO expects strong momentum to continue for the second half of FY20 as the company takes advantage of a large market opportunity and invests in sustainable growth. For the full year of FY20, ELMO forecasts ARR between $61 to $63 million which compares to $46 million in FY19. In addition, revenue is forecast to be between $53 to $55 million and EBITDA between $1 and $3 million.
Broker note
Recently, analysts from 2 separate firms initiated coverage on the ELMO share price. Analysts from global capital group Cannacord Genuity included ELMO as 1 of 16 Top Australian stock tips for 2020. The analysts cited several catalysts that could drive growth for ELMO in 2020 and beyond. These factors include upselling new modules to existing customers, continued customer growth and further geographic expansion through acquisitions.
Corporate advisory service Moelis Australia also released a note on ELMO last week. Analysts expect the company to meet its FY20 revenue guidance and cited ELMO's cross-selling opportunities as an important driver. ELMO's strong investment in sales, market research and development were also cited as factors that could help the company broaden its product offering and increase brand awareness.
Foolish takeaway
In my opinion, ELMO is certainly a stock to keep on your ASX watchlist. The ELMO share price looks set to test all-time highs and could present a buying opportunity. I think a prudent strategy would be to watch for more coverage and let price action dictate before making an investment.
