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Why I think the WiseTech share price is in the buy zone

The WiseTech Global Ltd (ASX: WTC) share price was hit hard in the early phase of the coronavirus pandemic, falling from $29.44 in mid February to $10.48 in in mid March. Since then WiseTech’s share price has seen a partial recovery, however, it is now only trading at $20.34, well below its pre-COVID-19 levels.

Global trade is now picking up, which means WiseTech is gradually seeing its operations get back to normal levels. WiseTech continues to invest for future, and believes it is well placed to tap into the growing demand for logistics solutions.

So, is the WiseTech Global share price in the buy zone?

What is compelling about the WiseTech business model?

WiseTech Global is a world-leading developer and provider of software solutions to the logistics industry. Its customer base is now in excess of 15,000 and spans more than 150 countries.

As the global economy continues to grow, logistics – the process of manufacturing and efficiently delivering products to the end consumer – has grown more complex. WiseTech has carved out a very successful niche in addressing this growing issue.

WiseTech’s flagship product is CargoWise One. It can be tailored for each customer’s supply chain. It provides logistic services including customs brokerage, HR management, and online tracking and tracing.

CargoWise One doesn’t operate as a traditional subscription-based software-as-a-service (SaaS) product. WiseTech generates revenue depending on how an individual customer utilises the software. This enables WiseTech to grow its revenues as customers expand their usage. CargoWise One also has an extremely high 99% retention rate.

Strong revenue growth despite short-term challenges

WiseTech has continued to grow at a strong pace in recent times, in both size and scale via organic growth and targeted acquisitions. Between 1H16 and 1H20, WiseTech has grown its revenue base at a compound annual growth rate of 43%. The company continues to invest strongly to drive product innovation. This provides a solid foundation for future growth.

In February, WiseTech downgraded its earnings forecast for FY 2020. It now anticipates revenue growth of between 5% and 22%. This downgrade was driven by a sharp downturn in manufacturing and economic trade in the first few months of the coronavirus pandemic.

Foolish takeaway

With the WiseTech Global share price still well down on pre-COVID levels, I think now could be a good buying opportunity for long-term investors. As global trading begins to start to get back to more normal levels, I believe this should see WiseTech Global’s revenue stream start to pick up. I remain confident that WiseTech Global is well placed to grow it revenues over the next five years, driven by the rising demand for logistic solutions.

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Motley Fool contributor Phil Harpur owns shares of WiseTech Global. The Motley Fool Australia owns shares of WiseTech Global. 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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