The Nearmap Ltd (ASX: NEA) share price has been a strong performer over the last couple of months.
Since March 29, the aerial imagery technology and location data company’s shares have zoomed a remarkable 123% higher to $2.23.
Is it too late to buy Nearmap shares?
Despite Nearmap’s impressive gain over the last couple of months, it is worth noting that they are still trading almost 50% lower than their 52-week high of $4.29.
I believe this leaves the company’s shares trading at a very attractive level for a long term investment. Especially given its high quality software and the fragmented and lucrative market it operates in.
I’m not the only one that thinks that the Nearmap share price is in the buy zone. This morning analysts at Goldman Sachs retained their buy rating and lifted their price target on its shares to $2.55.
Why is Goldman Sachs bullish on Nearmap?
Goldman Sachs was pleased with Nearmap’s better than expected market update on Thursday and named three key reasons why its shares are a buy.
The first is its large and growing market. The broker notes that Nearmap estimates the market opportunity in its four countries of operation (Australia, New Zealand, United States, and Canada) to be worth $2.9 billion per year.
This means that the annualised contract value (ACV) that it expects to achieve in FY 2020 of $103 million to $107 million is just a ~3.6% share of its overall market. This gives it a significant runway for growth over the next decade.
Another reason it is positive on the company is the fragmented nature of the aerial imagery market. Goldman believes this gives providers such as Nearmap an opportunity “to scale across a broad range of industry segments (i.e. such as architecture, insurance, government, utilities, solar panel providers).”
A third reason is the company’s technology. The broker believes it is very competitive versus its domestic and global peers. It notes that its strengths include high quality image capture and market leading frequency of capture. It also notes that a substantial investment has been made to provide oblique and 3D imagery and artificial intelligence/machine learning driven analytical capability at scale.
Combined, the broker believes Nearmap is capable of growing its ACV by a compound annual growth rate of 18% between FY 2019 and FY 2022.
I think Goldman is spot on with its buy rating, but is potentially being a little conservative with its estimates. I expect the company to deliver on its target of at least 20% growth over the period.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Nearmap Ltd. The Motley Fool Australia owns shares of Altium and Appen Ltd. 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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