2 sold-off ASX tech shares that are opportunities: experts

These two ASX tech shares have been sold off, but could be opportunities.

| More on:
a woman wearing a close-sitting hat featuring wires and thick computer screen glasses clutches her computer monitor and looks shocked and disturbed as she reads old-fashioned computer text from the screen.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Experts believe that the two ASX tech shares in this article are long-term opportunities
  • TechnologyOne is quickly transitioning its clients onto high-margin, attractive software as a service contracts
  • Data centre business Nextdc continues to experience strong demand and higher utilisation, which is building its long-term earnings potential

Plenty of ASX tech shares have been sold off in recent weeks and months. There could be several opportunities to jump on for investors.

However, which businesses are good ones to pursue? Some of Australia's leading analysts have had their say on some quality technology companies. These two have been named as buys:

TechnologyOne Ltd (ASX: TNE)

TechnologyOne is a leading tech business, it's the largest enterprise software company on the ASX.

This business provides a global software as a service (SaaS) enterprise resource planning (ERP) solution that helps businesses. The software can be used anywhere and is reportedly easy to use. Over 1,200 leading corporations, government agencies, local councils and universities are powered by its software.

TechnologyOne is transitioning its clients onto recurring software as a service (SaaS) contracts. The company said this revenue stream is "exceptionally high" because of the recurring nature, combined with a very low churn rate of around 1%.

In FY21, the ASX tech share's total annual recurring (ARR) was $257.6 million, up 16%. It's on track to hit its target of $500 million by FY26. By FY24, it's expecting to be growing its total revenue by more than 15% per annum.

Profit margins continue to rise, helping the bottom line. The profit before tax margin increased to 31%, up from 28% in the prior year. It's expecting this to reach higher than 35% in the coming years, thanks to significant economies of scale from its SaaS offering.

TechnologyOne says it's on track to double the size of its business in the next five years.

It's currently rated as a buy by Morgans with a price target of $13.73. That's more than 30% higher than where it is right now.

Nextdc Ltd (ASX: NXT)

Nextdc is a leading data centre provider. It says it's building the infrastructure platform for the digital economy, delivering the critical power, security and connectivity for global cloud computing providers, enterprise and government.

Demand is quickly growing for its data centres. At the end of January 2022, it said that after recent customer wins, contracted utilisation (excluding options and reservations) has increased by around 5.5MW since the end of FY21 to around 81MW at 31 January 2022.

Revenue for most of the new contracted capacity is expected to be recognised from FY23 onwards after completion and commissioning of the associated data halls.

The ASX tech share says that the sales pipeline remains robust, with the company seeing the strong sales momentum carrying forward into the second half of FY22. It continues to invest in more digital infrastructure to support the new contracted capacity which will turn into annuity-style economic returns over the long-term for investors.

Third generation 'hyperscale' data centres, M3 and S3, are expected to be brought into service at the end of FY22.

The Nextdc share price has fallen 20% in 2022.

Citi thinks Nextdc is a buy, with a price target of $15.40. That implies a potential increase of around 50% over the next 12 months. The broker likes the amount of demand and development progression that the company is seeing. Asian expansion could also be getting closer.

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. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

A happy young couple lie on a wooden deck using a skateboard for a pillow.
Share Gainers

These were the best-performing ASX 200 shares in March

These shares made their shareholders smile in March thanks to some very big gains.

Read more »

Businessman using a digital tablet with a graphical chart, symbolising the stock market.
Opinions

2 ASX shares I have been buying in 2024!

I’m a believer in the long-term outlook of these stocks.

Read more »

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Opinions

2 of my top ASX 200 shares to consider buying before April

I would happily exchange dollars for these two shares right now.

Read more »