NextDC Ltd (ASX: NXT) has been one of the many ASX tech shares to outperform in 2020.
While the S&P/ASX 200 Index (ASX: XJO) has slumped more than 10% lower this year, NextDC shares have rocketed 73% higher.
Some investors might think they’ve missed the boat on the Aussie data centre operator. Here’s why I think NextDC and 2 more ASX tech shares could actually be in the buy zone.
Why I think NextDC has more growth left in it
I think it’s worth mentioning that most tech shares are going to be trading at high price-to-earnings (P/E) ratios. That’s because investors are paying handsomely today for future expected growth.
For instance, NextDC reported revenue of $97.7 million in its February half-year results, but a net loss after tax of $4.9 million. That’s not unusual when investing in ASX tech shares. Despite this, I believe there is strong potential – I like NextDC for its strong revenue growth projections and increasing demand for data storage and security.
Cybersecurity and off-site data storage are two looming issues for Aussie businesses over the next decade or two. I think NextDC is already somewhat ahead of the curve with established sites across Melbourne, Sydney, Brisbane, Perth and Canberra.
A recent company update also indicated strong contracted commitment options after winning several material customer contracts in New South Wales. That caught the eye of leading broker Goldman Sachs which upped its price guidance for the NextDC share price to $11.10 per share. NextDC has already smashed through that target, with shares up to $11.34 today at the time of writing.
Clearly, there is strong momentum behind the ASX tech share right now. Given its significant expansion plans and growth potential, I think NextDC’s value may continue to climb higher.
2 more ASX tech shares I’d like to buy today
It’s not just NextDC shares I’ve got my eye on. Despite climbing 16% higher this year, I like the look of Xero Limited (ASX: XRO) shares.
Xero offers a cloud-based accounting software platform for small and medium-sized businesses. That’s a particularly in-demand area at the moment given complexities around small business accounting amid the coronavirus crisis.
While the government stimulus programs have helped prop up the economy, it has also created a few headaches for small business accountants. That’s where Xero can continue to innovate and make the most of a strong market opportunity.
According to government statistics, small businesses account for 34% of industry value added (IVA) in Australia. This huge contribution to Australia’s GDP makes them a potentially lucrative market for Xero to continue to capture.
The ASX tech share reported some strong numbers in its 14 May full-year result. Xero’s subscriber numbers surged 467,000 during the year to 2.285 million while the company posted a net profit after tax of $3.3 million. Free cash flow jumped $20.7 million to $27.1 million for the year.
Those are some strong financials, despite flagging slowing subscriber additions due to COVID-19.
Finally, if you want to diversify across ASX tech shares, I’d consider an exchange-traded fund (ETF). An ASX-listed ETF can be an easy way to gain exposure to multiple tech companies.
The ETFS Morningstar Global Technology ETF (ASX: TECH) has caught my eye recently. The ASX tech ETF has a management fee of 0.45%, is not currency-hedged and has assets under management of $144.3 million as of 3 July 2020.
With top holdings like BroadCom Inc. (4.2%) and Microsoft Corp (4.0%), this ETF is an easy way to get exposure to other quality tech shares outside of the ASX.
Where to invest $1,000 right now
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
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Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ETFS Morningstar Global Technology ETF and 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.
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