There are some really good ASX tech shares out there that are rated as buys by brokers.
Brokers (hopefully) have a good understanding of the merits of the businesses and have given thought to whether, at the current share price, a business is a buy, hold or sell right now.
These two businesses are ones that brokers think are buys in the technology space at the moment:
Image source: Getty Images
FINEOS Corporation Holdings PLC (ASX: FCL)
FINEOS is a software provider for the employee benefits and life, accident and health industry. Its technology aims to improve operational efficiency, increase effectiveness and provide excellent customer care.
The 'FINEOS AdminSuite' is designed to manage the modern complex structures and relationships of group and individual insurance processing to optimise the plan, coverage and data management, operational processing and business intelligence.
It's currently rated as a buy by at least three brokers including Macquarie Group Ltd (ASX: MQG). The price target from Macquarie is $4.63, which suggests a potential upside of around 20% over the next 12 months if the broker is right.
Macquarie believes that FINEOS looks good value when looking at its peers, yet the business continues to make good operational progress. The broker thinks that it has a good future.
The ASX tech share is expecting organic subscription revenue growth of 30% for FY21. Management said this demonstrates strong and consistent software as a service (SaaS) revenue growth. Around 71% of its revenue is cloud-based.
It's also looking for strategic bolt on acquisitions to enhance the FINEOS platform, such as Spraoi which is a provider of machine learning capabilities for the employee benefits and life industry.
Temple & Webster Group Ltd (ASX: TPW)
Temple & Webster is an online furniture and homewares business which sells many thousands of products through its website.
It's currently rated as a buy by at least two brokers including Morgan Stanley. The broker has a price target on the ASX tech share of $15.
The broker likes the tailwind for the business of the e-commerce growth story. There also continues to be good demand for the products that Temple & Webster sells. Morgan Stanley thinks that Temple & Webster can become much more profitable in the future.
A few months ago, Temple & Webster told the market that it's going to invest heavily over the next few years to increase its market presence, improve its offering to customers and make the business even more efficient. During this scale-up period, it expects that revenue will increase by "strong double digit" amounts whilst the earnings before interest, tax, depreciation and amortisation (EBITDA) margin would be between 2% to 4%.
But the ASX tech share's management believes that with scale it can achieve operating leverage and higher levels of profitability. That will include improved supplier terms, more repeat customers which will reduce marketing expenses, a slowing of investment in fixed costs and a higher percentage of exclusive products with higher gross profit margins.
Temple & Webster CEO and co-founder Mark Coulter has said:
You only need to look at the US to see how the e-commerce market is playing out, and why we remain bullish about the shift from offline to online. We are at the start of this once in a generation shift, and now is the time to put our foot down to secure market leadership and ensure we are the brand for the next generation of furniture shopper.
