Is this the ‘secret sauce’ for ASX 200 tech share price growth?

Technology stocks have, on average, massively underperformed in 2022.

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S&P/ASX 200 Index (ASX: XJO) tech shares have been widely battered in 2022.

The ASX 200 itself has come under pressure amid the spectre of fast rising interest rates and following on from Russia’s invasion of Ukraine. Both of these factors have contributed to the 2.4% year-to-date loss for the benchmark index.

But tech shares, broadly, have done it much tougher.

Witness the 18.3% year-to-date drop in the S&P/ASX All Technology Index (ASX: XTX), which also contains tech shares outside of the ASX 200.


So, is it time to go fishing for bargains?

Only with due caution, according to Jessica Amir, Australian market strategist at Saxo Markets.

And make sure they’ve got the requisite ‘secret sauce’.

The secret sauce for share price growth

Amir notes that fundamentals indicate the market is pricing in that the ASX 200 will rise in 2022. That’s largely based on earnings per share (EPS) growth forecasts.

According to Amir, “The market thinks EPS growth of 17% will come. The ASX energy sector itself it touted to generate 61% EPS growth over 12 months, and the mining sector 33% EPS growth.”

With commodity shares comprising 30% of the index, Amir said the market expectations are “quite feasible”.

As for ASX tech shares, Amir said:

The market (consensus) expects the Australian tech sector to generate 860% EPS growth. Wow. We think that is not realistic for the tech sector and advocate for selective buying into tech. If you do buy into tech, consider profitable stocks, those with dominant/growing market share and those that are growing their earnings. That’s the secret sauce for share price growth.

The catch, however, is that most of ASX 200 tech shares don’t make profits.

ASX 200 tech shares making profits

Amir did single out a few companies that are profitable, including WiseTech Global Ltd (ASX: WTC) and the Xero Limited (ASX: XRO).

WiseTech is a global provider of cloud-based software solutions for the logistics sector. While Xero provides business and accounting software.

While they may be amongst the few currently profitable ASX 200 tech shares, that hasn’t spared shareholders some significant losses in 2022.

Year-to-date the WiseTech share price is down 14.6% while Xero shares have lost 29.5%.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended WiseTech Global and Xero. The Motley Fool Australia owns and has recommended WiseTech Global and Xero. 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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