Software and bikes: 3 ASX shares ready to explode

Last year’s growth darlings are sinking, so here are 3 alternative stocks that Forager Funds is excited about.

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A prominent ASX shares fund has revealed three stocks it has high hopes for after the recent results season.

Forager chief investment officer Steve Johnson said that Forager Australian Shares Fund (ASX: FOR)’s portfolio gained more than 4% over the February reporting period.

“In general, you’d give it a tick for reporting season,” he said in a Forager video.

“With COVID over the past 12 months, [results] were particularly closely watched, although often largely flagged by companies leading into reporting season.”

The Forager Australian Shares Fund share price has gone from $1.09 back in September to $1.40 as of Thursday’s close.

There are three ASX shares the fund currently holds that showed exciting prospects during February reporting, according to Johnson and senior analyst Alex Shevelev:

RPMGlobal Holdings Ltd (ASX: RUL)

RPM Global provides technology services to the mining industry. It’s currently Forager Australian Shares Fund’s largest position. 

The business has been around for more than 50 years, so is a lot more mature than many of its tech peers on the ASX.

Shevelev was anxious going into the RPM results announcement because there had been a pattern of enterprise suppliers experiencing delays in signing contracts.

“It seems like in the result what we saw was, yes, a slowdown,” he said.

“But some of the detail in that presentation was very helpful to work out that in fact, in the last calendar quarter of a year things were turning around and so far this quarter we’ve actually seen a lot of new contracts signed.”

Software providers that sell to businesses rather than consumers had done it tough in the past year, according to Johnson.

“Last year, every 5 million [dollars] of contract wins that they’d done they made an announcement on the stock market. We hadn’t heard anything since the full year [results]. Last year they gave an AGM update that wasn’t great,” he said.

“So we were quite nervous about this result, yet the number was quite good, at least until the end of February.”

Johnson added that he was now “pretty excited” about RPM’s future, while Shevelev said RPM has attractive revenue dynamics.

“It’s important here that what we’re adding is a really high quality recurring subscription revenue. And because it’s a very low churn, so not much of it goes away year to year, every dollar we’re adding now will build up forwards.”

Life360 Inc (ASX: 360)

The Life360 share price skyrocketed in mid-January with the news that former Facebook Inc (NASDAQ: FB) executive Randi Zuckerberg had been appointed to the board.

Although listed on the ASX, the company is American and it sells trackers to US parents for their teenage kids.

Shevelev said with COVID lockdowns hitting that country hard, the demand for such an app would have waned.

“Nonetheless, the company has been able to increase revenue year-on-year, and with the reopening of the US with higher value plans and with more people actually taking on paid plans, they’re talking about revenue growth in the order of 25-35% in this current year.”

Johnson said the guidance was “surprisingly bullish”.

“There was also some talk in their announcement about either a dual listing or a relisting to the NASDAQ in the US, which would certainly apply higher valuations in this climate than where we’re currently seeing in the share price.”

MotorCycle Holdings Ltd (ASX: MTO)

The coronavirus pandemic has been a boon for the motorbike and accessories seller, according to Shevelev.

“It’s been a phenomenal time to be selling motorcycles because you’ve had people being able to withdraw from super, you’ve had people being able to spend on domestic activities like motorcycles rather than international travel,” he said.

“Net profit was up 250% year on year, which is a phenomenal effort. And it looks like from the guidance that… activity level has continued into the current year.”

According to Johnson, MotorCycle Holdings’ balance sheet used to be “worrying” but the February accounts showed it was “completely fixed”.

“They’ve done a lot over the past few years to improve their market share, to grow the underlying size of the business and I don’t think we’ve yet seen the full impact of that in the results,” he said.

“So people are looking back and saying, well, if it goes back to 2019 profitability, and I put that on 12 or 13 times earnings, I get today’s price. I think there are sustainable earnings here, well and truly above what they made in 2019.”

Shevelev said the necessary reforms had now been made and it was just a matter of getting products into their stores.

“That’s actually very profit accretive because you don’t have to spend the extra operating costs.

“There’s a lot of self-help work that the company has done that, in addition to cutting costs, [is] really going to come through over the next couple of years.”

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Tony Yoo owns shares of RPMGlobal Holdings. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Facebook. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of RPMGlobal Holdings. The Motley Fool Australia has recommended Facebook and RPMGlobal Holdings. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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