I think that the end of 2020 could be a good time to buy ASX tech shares.
There is a downwards trend of tech shares in the US at the moment. The NASDAQ-100 (INDEXNASDAQ: NDX) fell by 3.2% overnight and it has dropped 13% since 2 September 2020.
I believe that there are plenty of technology businesses that could be strong performers over the coming years and worth buying:
Betashares Nasdaq 100 ETF (ASX: NDQ)
The upcoming US election could throw up a lot of volatility. Whatever happens next, it seems clear that whoever wins the next presidency will want the US stock market and its businesses to continue to do well over the long-term.
This exchange-traded fund (ETF) gives ASX investors the ability to indirectly invest in the best US businesses like Apple, Amazon, Alphabet (Google), Microsoft, Nvidia, Paypal, Adobe and so on. These are global companies that have extremely strong economic moats and could be almost impossible to dislodge by competitors.
Large ASX shares simply don’t offer the growth potential that the businesses in this ETF do. They have global growth aspirations with many compelling new products which drive earnings higher for many years.
At 31 August 2020, the ETF had excellent performance numbers. After fees (currently 0.48% per annum), the ETF had delivered a net return of 44% over the past year and 22.4% per annum since inception in May 2015.
Since 3 September 2020, the ETF has fallen 10%. The US election period could prove to be a compelling buying opportunity for the ETF if volatility (and declines) occur.
Altium Limited (ASX: ALU)
It is leveraged to the growth of the internet of things with a growing number of devices needing advanced electronics to operate.
The ASX share has an impressive number of large technological clients including: Apple, Disney, Microsoft, Google, Amazon, NASA, Space X, Tesla, John Deere, CSIRO, Honeywell, Broadcom and so on.
FY20 saw a lot of disruption with the company deciding to lower prices and offering longer payment terms so that it would continue to grow its subscriber base. Revenue only increased by 10% in FY20 and normalised earnings per share (EPS) – which excludes a one-off taxation change – went up 5%.
Over the long-term, Altium is aiming for US$500 million of revenue – perhaps by FY26 rather than FY25 because of COVID-19 impacts delaying revenue growth.
The ASX tech share is aiming to increase its profit margins over the longer-term which will hopefully mean growing dividends and good capital growth.
At the current Altium share price it’s trading at 47x FY23’s estimated earnings.
Pushpay Holdings Ltd (ASX: PPH)
Pushpay is one of the most exciting ASX tech shares in my opinion.
The donation payment business is aiming to double its earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) in FY21 to at least US$50 million.
The ASX tech share did really well in FY20, it grew its revenue by around a third. But most importantly, its profit margins grew significantly. Its gross profit margin increased from 60% to 65% and the EBITDAF margin improved from 17% to 22%.
I think that Pushpay could be much more profitable when (or if) it eventually reaches its US$1 billion annual revenue goal from the US church sector.
With so much growth potential, I think its valuation still looks very reasonable. At the current Pushpay share price it’s priced at 38x FY21’s estimated earnings.
I think each of these ASX tech shares have very exciting growth potential. Each of them is linked quite strongly to the US, so the upcoming election could cause a lot of volatility. At the current prices I’d definitely go for Pushpay, though the other two could be good long-term performers.
These 3 stocks could be the next big movers in 2020
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Tristan Harrison owns shares of Altium. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Altium. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of BETANASDAQ ETF UNITS and PUSHPAY FPO NZX. The Motley Fool Australia has recommended BETANASDAQ ETF UNITS and PUSHPAY FPO NZX. 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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