2 quality ASX shares to research this weekend

ELMO is one of the ASX shares that could be good think about this weekend.

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The weekend can be a good time to evaluate quality ASX shares when there isn’t all the ‘noise’ of the daily market action.

Some businesses are growing at an attractive rate and this could lead to satisfying compounding results over time.

Here are two that might be contenders:

ELMO Software Ltd (ASX: ELO)

ELMO is one of the globally, fast-growing software businesses on the ASX. It provides a number of different modules relating to HR, payroll and people.

The company is reporting double digit growth each quarter. In the first quarter of FY22, annual recurring revenue (ARR) grew 61% to $88.5 million, with organic ARR growth of 35%. Actual revenue increased 52% to $20.7 million for the quarter and cash receipts grew 78% to $27.7 million.

Whilst ELMO’s core mid-market software continues to grow well and it’s returning to pre-COVID growth, the small business market product from the acquired Breathe UK business is also growing well. Breathe saw growth of 55% year on year.

During the last quarter, the ELMO mid-market solution was launched into the UK and Breathe was launched into Australia. The ASX share has three pillars to its expansion strategy: segment expansion, module expansion and geographic expansion.

ELMO says that it has strong momentum entering the second quarter with a positive macroeconomic backdrop and with small and medium businesses adopting cloud-based solutions to manage a flexible workforce.

In FY22, the business is expecting ARR to end at $105 million to $111 million, revenue to grow to between $90.5 million to $95.5 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of between $1 million to $6 million.

Audinate Group Ltd (ASX: AD8)

Audinate is a business that is trying to improve the AV sector with its Dante audio over IP networking solution which it says is the world leader and used extensively in the professional live sound, commercial installation, broadcast, public address and recording industries. It replaces analogue cables with a single ethernet cable.

The ASX share recently gave a trading update for the first quarter of FY22, which showed a record amount of revenue. The revenue generated was US$7.6 million, an increase of 46.1% year on year. This record was achieved during a period when factory closures in both Malaysia and China limited further revenue growth.

Audinate is benefiting from record demand, with the backlog of orders for chips, cards and modules amounting to US$14.8 million at the end of the quarter.

Management explained that this growth from a pre-COVID backlog levels of around US$2.5 million reflects original equipment manufacturer (OEM) customers placing orders further into the future and strong underlying growth in demand.

However, the component shortage is expected to impact the second half of FY21. It’s panning to bring forward the next generation Booklyn product by the fourth quarter of FY22, with customers expected to be able to incorporate it into their products with little or no re-design. It will use a next generation chip which is not dependent on the capacity constrained chip foundry from its supplier.

The ASX share is focusing on accelerating its product transitions to platforms with improved supply outlook and alternative part availability.

It’s still expecting FY22 US dollar revenue growth, though not in the pre-COVID historical range.

Should you invest $1,000 in Audinate right now?

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended AUDINATEGL FPO and Elmo Software. The Motley Fool Australia owns shares of and has recommended AUDINATEGL FPO and Elmo Software. 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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