Motley Fool Australia

3 ASX tech shares to buy and hold

stock chart superimposed over image of data centre, asx 200 tech shares
Image source: Getty Images

Technology has revolutionised how we work and play. Furthermore, being technology focused has enabled some companies to weather the coronavirus crisis far better than others. Social distancing measures have hammered the economy this year. But some companies, as well as their investors, have reaped the benefits that stem from operating tech-focused businesses in the current environment. 

Let’s discuss 3 such ASX tech shares that I believe will reward long-term investors.

NextDC Ltd (ASX: NXT)

New contract wins have helped the NextDC share price surge to new highs over the past 12 months. In an update released to the market on 1 July 2020, CEO and managing director Craig Scroggie stated: “The demand for our data centre services continues to accelerate and exceed expectations”.

NextDC was also admitted as a top 100 ASX listed company in the June S&P/ASX Indices quarterly rebalance.

In May of this year, the Aussie data centre operator also completed a $191 million share purchase plan. This followed a $672 million institutional placement completed on 8 April. The funds will assist the company with pursuing growth opportunities including the proposed development of a new data centre in Sydney.  

Technology One Ltd (ASX: TNE)

Technology One is an Australian Software as a Service (SaaS) provider. The company’s diversified client base and global expansion plans are helping it to consistently deliver stable and increasing earnings.

In fact, in an announcement on 19 May, Technology One advised it anticipates annual recurring revenues (ARR) to grow to $500 million by FY24. ARR in FY19 was $202 million. Furthermore, the company reported a low churn rate of 0.45% for the half year ended 31 March.

CEO Edward Chung said: “With a strong pipeline, a high proportion of locked in recurring revenues, no debt and a strong balance sheet, we are well positioned to deliver continuing strong growth over the full year”.

Xero Limited (ASX: XRO)

Xero offers cloud-based accounting software for small and medium sized businesses. The software is designed to make record keeping simple and user-friendly.

The group has been successfully expanding and now operates in Australia, New Zealand, the United Kingdom, North America, and other parts of the world.

In its FY20 investor presentation on 14 May this year, the company announced subscribers have grown 467,000 to 2.285 million. As a result, revenue climbed 30% year-on-year to $718.2 million. Earnings before interest, taxation, depreciation and amortisation (EBITDA) has also increased $64.6 million year-on-year to $137.7 million.

Its successful growth strategy is a key reason the Xero share price has been surging. While the company cautioned about the uncertainty surrounding COVID-19, it remains committed to its growth targets and long-term strategy.

CEO Steve Vamos said on 14 May 2020: “…Now more than ever, small businesses are recognising the benefit of being able to use the cloud to run their businesses and manage their finances.”

Foolish takeaway

I believe technology is driving flexibility of operation in the modern world. As a result, barriers such as physical location are now declining allowing us to increasingly work and play online.

I’m confident an investment in the companies listed above has the potential to reward long-term investors with capital growth due to the increasing demand for their products and services. 

Free Stock Report: 5 stocks under $5

We hear it over and over from investors, "I wish I had bought Altium or Afterpay when they were first recommended by The Motley Fool. I'd be sitting on a gold mine!" And it's true.

And while Altium and Afterpay have had a good run, we think these 5 other stocks are screaming buys. And you can find out the names of these stocks in the FREE stock report.

*Extreme Opportunities returns as of November 14th 2020

Matthew Donald has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

Related Articles…