2 ASX tech shares to buy that have plunged: experts

Xero is one of the ASX tech shares that have suffered declines recently.

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Key points

  • Some of the ASX’s leading tech companies have fallen in recent weeks
  • Leading online retailer Temple & Webster’s shares fell 10% yesterday. Revenue keeps growing quickly.
  • Xero shares have dropped 20% in the last couple of weeks. But its margins and subscribers continue to rise.

Some of the leading ASX tech shares have suffered big declines in the last few weeks. This could make them opportunities for investors.

There are always different events occurring that capture news headlines that may or may not have an impact on share markets. COVID-19 has certainly been one of those world-changing events. Rising interest rates might be another factor that investors need to keep in mind.

Yesterday, some ASX tech shares suffered some big declines. Added to falls of recent weeks, these two stocks may be good options to jump on:

Temple & Webster Group Ltd (ASX: TPW)

Temple & Webster offers customers a large range of the latest styles of furniture, homewares and more. It has over 200,000 products on sale from hundreds of suppliers.

One of the advantages of the company’s operating model is that many of the products are sent directly to customers by suppliers, enabling faster delivery times and reducing the need to hold inventory, allowing for a larger product range. Around 74% of sales were through this drop-ship model in FY21.

Yesterday, the Temple & Webster share price fell by around 10%. It is down 23.6% since the beginning of the year.

Morgan Stanley rates this business as a strong buy, with a recent price target of $16.25. That’s a potential upside of almost 100% over the next 12 months if the broker ends up being right.

When the ASX tech share released its FY21 result, it noted it’s operating in a $16 billion market (excluding business to business) where less than 9% of that is sold online.

FY22 has seen revenue continue to rise strongly, with year on year growth of 56% up to 15 October 2021. Management note the business continues to experience strong tailwinds, including the ongoing adoption of online shipping due to structural and demographic shifts.

Xero Limited (ASX: XRO)

Xero is one of the world leaders when it comes to accounting software. A particular advantage that it has had for some time is that its service is entirely online.

It’s quite rare for a quality company like Xero to suffer the quick fall that it has. Since 4 January 2022, Xero shares have declined almost 20%.

However, the company continues to grow. Credit Suisse is one of the brokers that currently likes the ASX tech share, with a buy rating and a price target of $160 – that’s comfortably more than 30% higher than where it sits today.

The broker noted that Xero continues to grow across most operating metrics. The gross profit margin increased again in the first half of FY22, with growth from 85.7% to 87.1%. Subscribers jumped 23% to 3 million. One factor that could help long-term earnings growth is an increase in the average revenue per user (ARPU), which went up 5% to $31.32 in HY22.

Xero continues to re-invest most of its profit back into more growth for the long-term.

It’s also making regular bolt-on acquisitions to improve its offering for subscribers in the various markets it operates.

In November it announced the acquisition of LOCATE Inventory, a US cloud-based inventory management provider.

Then, in December, it revealed it was going to acquire TaxCycle – a leading Canadian tax preparation software company for accountants and bookkeepers to support the growth strategy in that strategically important market.

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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 and has recommended Temple & Webster Group Ltd and Xero. The Motley Fool Australia owns and has recommended Xero. The Motley Fool Australia has recommended Temple & Webster Group Ltd. 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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